Gas and power fall despite rising oil
Gas and power fall despite rising oil
Oil prices increased month-on-month as concerns about intervention in Syria and conflict in the Middle East caused unease in the market. Month-ahead Brent crude oil rose 1.2% to a monthly average of $111.3/bl; the contract reached an eight month high of $115.3/bl on 9 September.Gas prices traditionally track the cost of oil largely due to the impact of oil-indexed gas contracts. Therefore as oil prices rise it would usually be expected for gas to rise as well, and power to follow. However, in September annual gas and power prices fell, pushed down by other market drivers.
The benchmark annual gas contract fell 1% to a monthly average of 67.1p/th as gas consumption remained subdued through the month. At the same time gas production increased as scheduled maintenance at North Sea gas fields came to an end. Although gas and power prices are also linked (owing to the large amount of gas-fired generation on the UK system), the drop in power prices was partially offset by rising carbon and coal prices. The annual October 13 baseload power fell just 0.2% to 51.7/MWh in September.
A rise in coal-fired generation across the EU pushed up demand for the fuel and average coal prices climbed 1% to $84.2/t in September. This increase, combined with a reduction in the number of free allowances available to industry, pushed carbon prices up 17% to a monthly average of 5.2/t.
October 2013 - Crude oil and annual wholesale gas and power prices graph
Gas storage fears push up day-ahead prices
Ahead of the coming winter companies began ramping up volumes of gas injected into storage facilities. The increase in gas demand for storage injection pushed up the cost of day-ahead gas 1% to average 65.7p/th in September. Despite this gas storage levels are only around 85% full, compared to nearly 99% this time last year.
The increased cost of gas, combined with outages at nuclear power stations and still conditions which impact levels of wind generation meant that the day-ahead electricity contract increased 4% to average 49.3MWh in September.
October 2013 - pot power prices and temperatures graph here
Rising demand as a result of cooler temperatures will push up prices over the next few months. Forecasters are predicting colder than normal temperatures for the UK during November. The low level of gas storage levels, compared to last year could result in a spike in gas and power prices if temperatures plummet. Analysts have predicted that coal prices will fall to near $79/t by the end of the year as the global coal market remains oversupplied. This could reduce the effect of rising gas prices over the winter, but it is likely that coal prices will begin to recover in 2014. October 2013 - Annual gas prices chart
The return of North Sea gas production facilities, following maintenance outages, has improved supply and helped to lower prices. Monthly average annual October 13 gas was down 1% to 67.1p/th in September, 1% higher than the average for September 2012 and 2% higher than the 2012 average of 65.8p/th. October 2013 - Spot gas prices chart
Rough storage is roughly 85% full compared to 99% full last year. Low storage levels have kept demand higher as gas is required to fill up storage facilities before winter comes. Day-ahead gas prices rose 1% to average 65.7p/th in September compared to 64.9p/th in August. The day-ahead gas contract was 9% higher than the average for September 2012. October 2013 - Annual power prices graph
Longer-term power prices followed the fall in their gas counterparts; however movement was limited by a rise in carbon and coal prices. Coal and gas are the primary generation fuels on the electricity system and changes in their prices have a significant impact on power prices. Monthly average annual October 13 power was up 0.2% to 51.7/MWh in September, 3% lower than the average for September 2012 and 2% lower than the 2012 average. October 2013 - Spot power prices graph
Unplanned outages at nuclear power plants, combined with low wind speeds meant relatively expensive gas-fired power stations had to be called on to generate in September. Month-on-month the day-ahead power contract rose 4% to average 49.3MWh in September. The contract is now 13% higher than the 2012 average of 43.7/MWh. October 2013 - Key market indicators table
CBI calls for business energy efficiency push
A step-change in energy efficiency would help companies to cut costs, manage risks, and open up new growth opportunities, business lobbyist the CBI has said.
A report published by the organisation on 28 August argued energy efficiency had been neglected for too long in the broader energy debate, despite government figures showing the domestic industry alone is growing by 4% a year.
Understanding the potential
Shining a Light claimed progress on business energy efficiency had been undermined by a lack of Board-level awareness about its potential benefits. It said some executives were insufficiently concerned about energy prices to take action, while others were unaware of the return on investment they could achieve by making improvements.
A survey conducted by the CBI also confirmed that many businesses found accessing finance for energy efficiency measures a significant hurdle. The report noted that many companies had to depend on external finance to fund their investments, but the current financial climate made accessing such funds "a challenge" - particularly for small and medium-sized enterprises. "When finance is available, the range of options can be vast and confusing", the CBI said.
The report found businesses also had “dim views” about the impact of government policies on their ability to make positive investment decisions. Only 5% of companies considered that the existing policy framework encouraged energy efficiency, while almost 90% were mixed to negative when asked about how government worked with businesses in this area.
In addition, the CBI noted that specific policies had received mixed feedback from businesses. Measures such as Climate Change Agreements – whereby companies receive an exemption from the majority of the Climate Change Levy if they achieve a set energy efficiency target – have been reported as largely successful in improving efficiency within energy-intensive industries, owing in part to their relative simplicity. But the report said other policies, including the Carbon Reduction Commitment energy efficiency scheme, were regarded as bureaucratic and costly, without having any impact on behaviour or investment decisions.
The CBI made a series of recommendations for both businesses and government. It said companies needed to consider how to embed energy efficiency within business processes and share responsibility across the organisation for identifying and implementing improvements.
The government was advised to redouble its efforts to deliver a coherent business energy efficiency policy framework. The report said that, above all, the Energy Efficiency Deployment Office – which was established by the coalition last year – needed to deliver meaningful progress in three areas: effectively linking energy efficiency policies across government, streamlining the existing policy landscape, and intensifying its business engagement with regard to the design, implementation and communication of government policies.
The CBI also noted that, beyond the overarching landscape, there were areas in which the government needed to develop a more targeted approach to “plug specific gaps and support investment decisions”.
The report makes clear that realising the potential for business energy efficiency will involve both the government and companies alike recognising the need for change.
Parties set out energy platform
The UK's three major political parties have used their autumn conferences to set out their visions for the future of the energy sector.
Labour's price freeze proposal
Speaking at the Labour Party conference on 24 September, leader Ed Miliband pledged to freeze gas and electricity prices for homes and businesses in the UK for 20 months, if his Party takes office in 2015. This move, he said, could save the average business £1,800 a year.
At the conference, which took place between 22 and 25 September, shadow energy and climate change secretary Caroline Flint also promised a Labour government would deliver “the most radical, comprehensive energy reforms since privatisation”. She said the party would break-up the Big Six, forcing them to separate their generation from their retail arms.like recognising the need for change.
Lib Dems to act on "astronomical" bills
At the Liberal Democrat conference on 15 September, energy and climate change secretary Ed Davey challenged the implication that the government’s green policies were pushing up energy bills, and said these had instead been increasing owing to the rising price of wholesale gas. Nonetheless He assured he was determined to act on “astronomical bills”. Ofgem would also be given tougher powers as, Davey said, “too many energy companies have ripped off too many people”.
The conference also passed a Green Growth and Green Jobs policy motion, which confirmed the party would, in contrast to its past position, back the development of a new generation of nuclear power plants.
Tories' energy efficiency pledge
Meanwhile speaking at the Conservative Party conference in Manchester, which took place between 29 September and 2 October, climate change minister Greg Barker noted that since it took office the government has made significant progress in increasing the energy efficiency of Britain’s building stock. While Barker acknowledged it is “early days for the Green Deal market”, he told delegates not to underestimate the “ambition or determination” to drive it forward.
The minister also touted the benefits of local energy, calling on businesses and community groups to begin generating energy “at real scale”.
With a general election less than two years away now, MPs used the events as a chance to start defining their campaigns for 2015.
Labour Liberal Democrats Conservatives
DECC decides against gas storage incentives
Bill payers will not be asked to subsidise increased investment in gas storage, the government has confirmed.
Market "working well"
As part of its work to bolster the UK’s energy security, ministers had been considering several options for intervention to incentivise the development of new gas storage facilities. These included placing an obligation on gas companies to secure supplies, holding more gas in storage during the winter, and providing financial support for new projects in the sector.
But in a statement issued on 4 September, the government confirmed its analysis suggested the UK gas market continued to function well in attracting gas from a range of sources, and that storage had provided only 7% of the UK’s overall supply in 2012. It said the UK had the capacity to deliver twice the amount of gas required in a normal winter, and had coped well with extreme winter conditions, such as the extended cold snap in March 2013.
Saving bill payers
Energy minister Michael Fallon said the decision would save bill payers around £750mn over 10 years. Security of supply, he argued, could be delivered more cheaply by the market, and action was already being taken to ensure that it provided sufficient energy in the short and medium term. It was up to the industry to “get on and invest in building gas storage”, Fallon added.
Most important now is to see how companies who have storage projects in the pipeline respond to the announcement. Centrica has already confirmed it will not now proceed with two planned developments.
Majority of UK business concerned about Electricity Market Reform
Three quarters of UK businesses are worried about the impact that the government’s Electricity Market Reform (EMR) package will have on them, according to research by supplier RWE npower.
The research, issued on 1 September, showed nearly all (97%) companies were concerned about how the legislation would impact the cost of energy. Only slightly less (91%) were worried about the ability to forecast costs. 86% of businesses highlighted the impact of the proposals on UK competitiveness as an area of uncertainty.
Wayne Mitchell, npower’s industrial and commercial sales and marketing director, said it was no surprise in the current economic climate that cost implications topped the list of business concerns. But he said it was also revealing that businesses were so concerned about competitiveness, “as the last thing government will want is businesses moving abroad as a way around EMR”.
Business energy efficiency to be supported by new fund
The first dedicated commercial finance vehicle aimed solely at providing funding solutions for SME businesses seeking to become more energy efficient has been launched by ReEnergise Finance.
The launch, announced on 3 September, follows the signing in July 2013 of an agreement between ReEnergise Finance and SI Capital, whereby SI Capital will provide the initial funding for the ReEnergise SmartEnergy Finance scheme. The fund will initially provide access to up to £5mn, although there will be no upper limit to the size of the fund. It will target businesses that have been hampered in their efforts to find appropriate finance or independent advice.
Most interest is expected to come from energy-intensive manufacturing or process businesses, landowners, schools and hotels.
Energy tops business concern ranking, survey shows
Energy has overtaken transport as the biggest future infrastructure concern for businesses, a new poll has revealed.
Issued jointly by KPMG and the CBI on 16 September, the survey showed found more than three quarters (77%) of companies were not confident of improvements in energy infrastructure over the next five years – including more than eight in 10 (86%) manufacturers. The survey also showed that 90% of businesses were concerned about security of supply, while 95% were concerned about the cost of energy.
The CBI called on the government to enshrine the Energy Bill into legislation to provide businesses with the certainty they needed to invest in the UK’s future electricity supply.
Mandatory GHG reporting rules take effect
On 1 October 2013, the Companies Act 2006 (Strategic Report and Directors’ Report) Regulations 2013 came into force. The rules require that all UK quoted companies will have to report on greenhouse gas (GHG) emissions they are responsible for as part of their annual Directors’ Report.
The new regulations require obligated companies to report the annual quantity of emissions in tonnes of carbon dioxide equivalent from activities for which the company is responsible, including: the combustion of fuel; the operation of any facility; and the purchase of electricity, heat, steam or cooling by the company for its own use.