Gas Prices Rise On Colder Temperature
Gas Prices Rise On Colder Temperature
Oil prices fell month-on-month following news that sanctions on oil exports from Iran may be loosened following an agreement on the country's nuclear programme. Sanctions currently prevent around 1mn b/d entering the market. But the falls were partially offset by concerns over supply security in Libya, which resulted in a rise in the price of oil towards the end of the month. The contract reached a near seven-week high of $111.4/bl on 27 November. Across the month it averaged $107.4/bl.
While gas is historically priced at a discount to oil, the fall in oil contract only limited gains in gas prices. The significant drop in temperatures in the UK and Europe saw rising demand push up the price of gas. The benchmark annual gas contract rose 0.9% to a monthly average of 67.1p/th.
Gas trends fed through into power, as the UK fuel mix for electricity comprises a significant proportion of gas-fired generation. Reduced nuclear and wind output supported the short-term rise, while uncertainties in future maintenance schedules pushed up long-term prices. The annual April 13 baseload power climbed 0.6% to average 52.43/MWh in November.
Changes in the price of coal, which is another feedstock for power generation, can also impact electricity prices. In November, coal prices dipped 0.9% to an average of $82.1/t, as a result of record levels of stocks in China following improvements to domestic transport networks. The fall in the cost of coal partially offset increases in power prices. But fears over potential supply disruptions of the fuel limited the falls.
Annual EU ETS carbon fell 8% over the month to an average of 4.6/t. The commodity fell to a three-month low of 4.4/t mid-November following the sale of around 20mn allowances by European Investment Bank.
Falling temperatures pushed up gas and power prices
During November, temperatures fell 50% on average, compared to October. The colder weather prompted a rise in demand and increased storage use throughout the month, with both Rough and Holford supplying the system.
The increase in demand and storage use helped push up the price of gas, which fed through into power markets. The day-ahead electricity contract climbed 9.4% to average 52.8/MWh in November and was supported by reduced nuclear and wind generation.
Spot power prices and temperatures graph
Up to 15GW of coal-fired capacity could close earlier than previously expected if an amendment to the UK Energy Bill is successful. Currently, the plants concerned fall outside the EUs Large Combustion Plant Directive, which has already seen the closure of around 8GW of capacity, and further early closures could result in lower supplies driving power prices upwards. However, the expected return of several coal and nuclear plants over the following weeks should improve supply and apply downward pressure in the short-term market.
LNG imports are expected to reduce over the coming weeks, with the potential to drive up short-term prices. In the long-term, a reduction in Iranian sanctions could see output resume from the Rhum gas field in the North Sea. The gas field, which closed in 2010, could now resume output in 6-9 months.
Annual gas prices chart
Longer-term gas prices rose with a downward revision of winter temperatures. Increases in oil prices at the end of the month also pushed the contract up. Monthly average annual April 14 gas was up 0.9% to 67.1p/th in November, 0.5% higher than the 2012 average of 66.7p/th, but the contract was 2% lower than this time last year.
UK Spot gas prices chart
Falling temperatures resulted in higher demand for space heating in November, pushing up short-term gas contracts. The increase was supported by storage use as well as brief problems on the Dutch interconnector. Day-ahead gas prices rose 4.3% to average 68.1p/th in November compared to 65.3p/th in October. The day-ahead gas contract was 4% higher than the average for November 2012.
Annual power prices graph
The increase in the annual gas contract, combined with outages at power stations in the UK and Europe and uncertainties over future maintenance programmes, resulted in a rise in annual power prices. The contract climbed 0.6% to average 52.43/MWh in November.
Spot power prices graph
Higher demand and reduced supplies helped push up short-term prices, as nuclear and wind generation fell. Outages in Europe and colder weather caused French power prices to rise, resulting in exports form the UK to France at the end of the month which further reduced supply. Month-on-month the day-ahead contract climbed 9.4% to average 52.8/MWh in November. The figure is 17% higher than the 2012 average of 45.1/MWh.
Key energy market indicators table
Ofgem strengthens business marketing protections
The energy regulator announced on 20 November that it now has powers to "clamp down" on energy brokers that are marketing energy products and services to businesses in a misleading way.
Energy brokers also know as Third Party Intermediaries (TPIs) are organisations that help businesses to procure energy or manage their energy needs. These companies play an important role in helping non-domestic users compare the market, and as such have to follow consumer protection rules, such as the Business Protection from Misleading Marketing Regulations (BPMMR) 2008 (BPMMRs), which prohibit misleading advertising to businesses.
To date these regulations have been enforced by the Office of Fair Trading (OFT) and Trading Standards. But concerns have been raised that the lack of sector-specific regulation could allow "rogue" brokers to gain a foothold in the market.
Under its new powers Ofgem can take direct action against ?rogue? brokers that mis-sell energy to businesses. If appropriate, Ofgem can seek undertakings from brokers to stop misleading marketing activity or apply to court for an injunction to ensure they are complying with the legislation.
The powers gained to enforce the BPMMRs are consistent with Ofgem's existing powers in relation to domestic consumer protection regulations. Ofgem and the OFT now have concurrent powers to enforce the regulations in the energy sector.
More to come
This forms part of Ofgem?s wider work on regulating the TPI sector, which includes the development of a Code of Practice for organisations that operate in the business market. The code will confirm that brokers must behave in a fair and transparent way to give businesses confidence when using their services. Ofgem is expected to publish the code for consultation in December 2013.
The development also follows on from new standards of conducts introduced on 26 August this year, which ensure energy suppliers treat small businesses fairly on billing, contract issues and switching. These are backed up by Ofgem?s powers to levy fines if necessary. The regulator has also updated existing rules, so that 160,000 extra businesses now benefit from the protections.
The same day Ofgem also published key findings from research, undertaken by consultants Element Energy and The Research Perspective, that found one third of small businesses did not believe energy brokers were upfront about the costs of their services.
31% of the 1,300 businesses surveyed doubted that their broker had been upfront about whether there was a cost to their organisation for the broker's services, on the last occasion they were approached. 21% of micro-businesses disagreed that the broker "provided accurate information about the services they offer".
The research, which is not yet publicly available, concluded that 32% of micro-business respondents had a negative view of energy brokers.
This is a significant step forward, which will help businesses feel confident when dealing with TPIs.
Businesses groups call for action on energy costs
With the publication of the 2013-14 Autumn Statement just days away, business organisations have called on the government to help cut energy costs.
The Federation of Small Businesses (FSB) warned, on 20 November, that the UK's businesses were feeling the strain of rising energy bills. The organisation called on the government to mitigate against the potentially damaging effects of rising prices by making it easier for businesses to get a competitive energy deal.
The non-domestic energy market, according to the FSB, is "murky and difficult to navigate". Obligating suppliers to publish tariffs that are "meaningfully comparable from one supplier to the next" would be a "much needed first step to introducing transparency and fairer prices for small firms", it said.
In addition, the organisation noted that small businesses are increasingly having to "foot the bill" for the growth of third party charges " the costs associated with using energy networks and the government's green taxes and levies". It said one way to ease the pressure would be for the government to consider "phasing in" environmental policies over a longer term.
In its submission, published on 16 November, business lobbyist the CBI welcomed the government?s focus on infrastructure. But it said that, ?with the scale of private investment not having picked up as expected, the government?s focus on infrastructure investment must be relentless?.
The lobbyist also called on the government to reform the Energy Company Obligation (ECO) scheme and ensure that it is delivered in a cost-effective manner. ECO is an energy efficiency programme that places legal obligations on the larger energy suppliers to deliver energy efficiency measures to domestic energy users. The current deadline for obligations to be met is March 2015, but the CBI said extending the scheme to 2017 would provide greater certainty both to energy companies and businesses in the energy efficiency supply chain.
The CBI also urged the government to guarantee financial support for energy-intensive industries out to 2021.
Freeze the CRC
Manufacturers organisation EEF advocated a freeze in the cost of green taxes and levies as a means to help reduce business costs. A welcome first step, according to the organisation, would be to halt the rising trajectory of the Carbon Reduction Commitment (CRC) Energy Efficiency Scheme. Currently CRC allowances cost ?12/t CO2e, but the price is set to rise to 16/t CO2e in April 2014.
It also urged the chancellor to extend the energy-intensive industry compensation package up to 2020-21, and to exempt these industries from the costs of the Renewables Obligation and the feed-in tariff scheme.
The chancellor is expected to unveil the Autumn Statement on 5 December.
The central theme here is that businesses are increasingly feeling the strain of rising energy costs, due at least in part to costs associated with the government's energy and climate change policies.
January CRC deadline looming
The Environment Agency has published information on Phase Two of the Carbon Reduction Commitment (CRC) Energy Efficiency Scheme, which begins on 1 April 2014.
The CRC is a mandatory scheme aimed at reducing carbon emissions from large commercial and public sector organisations. Organisations required to participate must monitor and record emissions arising from their use of electricity and gas and purchase allowances to cover each tonne of carbon emitted.
Next phase draws closer
The first deadline under the scheme is the registration of CRC participants by 31 January next year. Whether an organisation is required to participate in the next phase of the scheme (2014 19) will depend on energy use in the year ending 31 March 2013. If an organisation was supplied with at least 6,000MWh of qualifying supplies of electricity through settled half hourly meters it must participate in the next phase and must register by January 2014.
If an organisation is required to participate, it will need to collect information on your organisation as it was on 31 March 2013 and collate its settled half hourly meter data. From this data it must calculate its qualifying supply and register with the CRC Registry.
The registration window opened on 4 November and the registration deadline is 31 January 2014. If an obligated organisation fails to register it may face a fine of ?5,000, with a further fine of 500 per working day until it registers up to a maximum fine of 45,000.
From April state funded schools in England will be exempt from the CRC, but all government departments will be required to take part as mandated participants.
Those obligated to take part in the scheme will be required to effectively report 100% of their electricity and gas use (subject to the 2% gas de minimus rule). Participants will also see the cost of allowances rise from 12/t to 16/t in April 2014.
Businesses should now be analysing whether they will need to participate in the next phase of the CRC and make preparations for registration.
Winter supplies secure: government
Plant closures have placed the UK's security of electricity supply at more risk this winter than in recent years, but the government has assured the overall threat remains low.
Each year the government, in collaboration with Ofgem, publishes a report detailing the availability of electricity and gas to meet the reasonable demands of consumers in Great Britain. The Statutory Security of Supply Report 2013, which was published on 31 October, noted that at the end of May power stations were providing 77.6GW of electricity generating capacity. The overall figure was reduced by around 4GW on the previous year following the closure of older coal- and oil-fired power stations. In addition there is around 10.5GW of local renewables generation connected to distribution networks, and around 4GW can be transmitted to and from France, the Netherlands and Ireland.
But the report also found that peak electricity demand has, owing to the economic downturn and increasing energy efficiency, been declining. Peak demand levels were 62GW over the winter 2012-13 down from 66GW in winter 2005-06.
Businesses missing out on energy efficiency benefits, report warns
The government must act urgently to help UK businesses to improve their energy efficiency if "huge" economic benefits are not to be missed, according to a report issued on 27 November.
Published jointly by the Westminster Sustainable Business Forum and think-tank Carbon Connect, the study warned of a widespread lack of understanding, at senior management level, of the advantages of increased energy efficiency. It recommended using the Green Investment Bank to fund a commercial subsidiary of The Green Deal Finance Company, under guarantee from HM Treasury, to offer low-interest loans to small and medium-sized businesses in order to stimulate the energy efficiency market.
Competition review details outlined
Ofgem, the Office of Fair Trading and the Competition and Markets Authority published on 25 November a joint letter to energy and climate change secretary Ed Davey, which provided further detail on the recently announced energy market assessment.
The regulator said it intends to publish an assessment framework in December, including the structure, behaviours and outcomes in the retail markets. It intends to publish a first assessment by the end of March 2014. But it was noted that this timetable means that it will not be possible to assess the impact of the Retail Market Review or to take full account of the new consumer research being commissioned by Ofgem.
On-site generation to save businesses 33bn
Electricity, heat and cooling generated from waste, wind turbines and solar panels could save UK businesses 33bn between 2010 and 2030, a new study has suggested.
Coming of age Decentralised Energy, which was commissioned by energy consultancy Utilyx and published on 6 November, suggested the capacity of onsite generation also known as decentralised energy will grow from 8GW in 2011 to 17GW in 2030. Businesses will be the main beneficiaries, through reduced energy costs, more stable energy prices, and cutting their carbon footprint.
Combined heat and power and energy from waste are predicted to deliver 20bn of savings for businesses by 2030. However, solar power and tri-generation (creation of cooling, heat and power) are expected to grow the fastest over the period.