Low coal and carbon reduces power prices
Low coal and carbon reduces power prices
January saw longer-term contracts dip slightly, but the day-ahead contracts saw notable gains on the back of cold weather. Annual power and gas prices have been trading at similar levels to October 2012 after being driven lower by record low coal and carbon prices in January. Coal prices dropped notably as global oversupply continued; annual coal prices declined 3.7% to a monthly average of $92.0/t. Carbon prices collapsed after an allowance auction failed to reach the reserve price. Annual carbon dropped 10% to a monthly average of €5.9/t. In contrast, month-ahead Brent crude increased 2% to a monthly average of $111.5/bl on renewed economic optimism and instability in North Africa.
The annual April 2013 power contract dropped 0.5% month-on-month to average £51.4/MWh, near unchanged compared to the same period in 2012.
The annual gas contract was also down 0.2% to a monthly average of 66.2p/th. The annual gas price has climbed 8% since July but is up only 1% on last year
Crude oil and annual wholesale gas and power prices graph
Short-term prices rise to 11-month highs on colder weather
Shorter-term power and gas prices have been driven up by the freezing temperatures across most of the UK during January.
But despite the cold snap, prices did not reach the peaks seen in February 2012 as the gas system was generally well supplied and higher wind output displaced more expensive gas generation.
The day-ahead gas price reached an 11-month high of 71.5p/th on 17 January, while its power counterpart climbed to another 11-month high of £55.4MWh by 23 January.
Spot power prices and temperatures graph
Outlook For Power
Short-term prices should fall once temperatures climb back towards seasonal norms, although forecasts have pegged February as colder than normal. Once concerns about high demand have passed, low coal and carbon prices should feed through to the price of UK power.
Against this, US coal-fired generation is expected to increase over the next twelve months as a result of rising American gas prices. This will reduce the amount of US coal available to the international market, and could counter-balance the downwards pressures and support coal and therefore power prices in the UK.
Cold weather in North East Asia (primarily Japan and South Korea) and nuclear outages have pushed up global LNG prices. This could have an effect on UK gas prices as the country will have to increase gas prices in order to attract LNG cargoes to our shores.
Continued political instability in the Middle East and North Africa could drive oil prices upwards, Algerian insurgents have attacked oil and gas infrastructure in North Africa, and instability in Egypt can cause concern as it is a major transit route for oil shipping. Concerns about supply security can feed through into gas prices, as oil prices are a major driver of gas prices.
Annual gas prices chart
The annual April 13 gas contract dipped slightly in January. On average the contract was down 0.2% to 66.2p/th; it is now 8% higher than the lows seen last summer. Despite rising oil prices, concerns about economic performance stopped annual gas prices from increasing.
Spot gas prices chart
The freezing temperatures across most of the country caused day-ahead gas prices to spike. Day-ahead prices generally increased throughout the month. The contract reached an 11-month high of 71.5p/th on 17 January. Despite the cold weather, we did not see the same peaks as last year as the system was well supplied.
Annual power prices graph
Annual baseload electricity dropped by 0.5% to average £51.4/MWh during January. It reached a three-month low of £50.9/MWh on 2 January. Longer-term power prices benefited from a significant reduction in carbon and coal prices.
Spot power prices graph
Low temperature forecasts and reduced wind output on some days of the month led day-ahead prices higher; day-ahead power prices climbed notably throughout January. The contract reached an 11-month high of £55.4/MWh by the end of the month.
Key market indicators table
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Third Party charges set to rise from April
Energy suppliers have some control over the wholesale cost of energy and their own costs to serve. But there are a number of additional charges over which they have no control.
These additional charges – set by third parties – typically rise on 1 April, as it marks the start of the new tax year and the new charging year for electricity networks. But we can already start to estimate what these costs may be, and it is not good news for businesses as these charges are set to rise.
Network charges increasing
Network charges pay for moving energy around the transmission (national) and distribution (local) networks. These charges typically account for about 30% of business electricity bills.
Network charges increasing
In its latest forecast, covering 2013-14, National Grid, which sets Transmission Network Use of System (TNUoS) tariffs, said these charges are to increase nationwide. Charges are generally set to rise over 10%, reflecting increases in the total allowed revenue proposed under new price controls. The increases could increase business electricity bills by up to 1%.
The new tax year also marks a new charging period for the local energy networks. Non-domestic consumers are expecting double-digit percentage increases in distribution charges, typically between 10% and 15%. Distribution costs usually account for around a fifth of total costs, and these increases could add a couple of percentage points to bills.
Cost of renewables rises
The cost of the electricity Feed-in Tariff (FiT) scheme for small-scale renewables is also likely to increase as more solar projects come online. The cost increases for FiTs are in the order of 2% on business bills.
The cost of subsidising large-scale renewables through the Renewables Obligation are also on the up as more large-scale projects, particularly large offshore windfarms come online. These costs are set to increase by around a third this year.
When combined these low-carbon support schemes account for up to 6% of business electricity bills.
CCL holds steady
All business customers are liable to pay the Climate Change Levy (CCL), which aims to encourage companies to become more energy efficient. The Treasury has confirmed the levy will rise in-line with inflation from April 2013.
Given the CCL already accounts for near 6% of business bills, this will have a further noticeable effect impact on bills for many businesses.
Carbon support kicks in
The cost of allowances under the Carbon Reduction Commitment energy efficiency scheme is to remain at ?12/t carbon in 2013. But the cost of carbon reflected in electricity prices is still set to rise owing to the introduction of carbon price support in the UK from April. The scheme, which will top-up the EU carbon price, could add 3% to wholesale power costs.
From 2013 the UK's largest businesses will also begin mandatory carbon reporting. Although there are no direct costs associated with this scheme it will no doubt bring with it an administrative burden for companies that do not already report under existing schemes.
From April there is scope for a 5% rise on electricity bills arising from changes to third party charges alone. But how suppliers will pass these charges on will vary based upon existing contract terms.
New energy performance rules take effect
Commercial buildings across England and Wales that have an Energy Performance Certificate (EPC) are now required to display it or face fines.
Under the new rules, which took effect on 9 January, all public buildings over 500sq m must display a valid EPC if one is available. Among others, large department stores and railway stations may be affected.
New energy performance rules take effect
Businesses that fail to comply can be fined up to £500 and face an additional ?1,000 penalty for failing to possess an EPC advisory report.
There is no obligation to obtain an EPC if one is not available. In this case a Display Energy Certificate (DEC) can be shown, which already is a requirement for public buildings larger than 1,000sq m. But when a building is built, sold or rented, an EPC is required.
What is the difference?
EPCs rate the design of a building. It is accompanied by an advisory report detailing ways to reduce energy use. DECs are based on the actual energy usage of the building.
The government had wanted the UK to mandate the universal introduction of EPCs, but the new rules are a compromise reflecting wider concerns to reduce red tape for businesses.
Government claims progress on green commitments
The government has taken stock of its green achievements and has said that its policies will provide certainly for investors and in the long term keep energy prices as low as possible for consumers.
The Coalition: Together in the National Interest Mid-Term Review Programme for Government, published on 7 January, claimed the government is largely on-track towards meeting its green targets.
Ups but some downs
Reiterating the Coalition’s pledge to become the “greenest government ever”, the documentstated environmental issues remained a “top priority”. It also re-affirmed the government’s pledges to treble support for low-carbon energy and to drive-up energy efficiency. The Gas Generation Strategy, which set out plans late last year for construction of up to 37GW of new gas generation by 2030, and the Energy Bill were cited as ways in which the government is taking decisive action on energy security.
But the review acknowledges that work is moving slowly on carbon capture and storage, and we are at an early stage in rolling-out smart meters to over 50mn homes and businesses.
“More must be done”
The Opposition said political infighting over renewable energy policy and unsustainable decisions have done little to back-up pre-election claims and have resulted in “fear, not certainty”, in the industry, which is deterring investment.
The government has made progress in a number of areas in its drive to decarbonise the energy sector, but this will come at a cost to all consumers through increases in energy bills.
Government splits solar PV banding incentives
The level of support for solar photovoltaic (PV) projects under the Renewables Obligation (RO) will be different between ground- and building-mounted installations, the government announced in December. The split aims to encourage large businesses to install on-site renewables.
The rate for new roof-mounted projects in 2013?14 will be 1.7Rocs/MWh, falling to 1.4Rocs/MWh in 2016?17. Support for ground-mounted installations will be 1.6Rocs/MWh in 2013-14, and it will fall to 1.2Rocs/MWh over the same period.
Currently the RO is the main mechanism by which the government incentivises the deployment of renewable electricity generation above 5MW.
MPs shoot down carbon compensation plans
Government plans to compensate energy-intensive industries for the impact of carbon policies on their bills is nothing more than a short term fix, an influential committee of MPs has claimed.
The government has previously set out plans to help energy-intensive industries offset the cost of UK and EU carbon policies with a £250mn compensation package. But in its 4 January report the MPs on the energy and climate change select committee said the compensation package does nothing to address the barriers to long-term decarbonisation.
Instead the government should set out a strategy to ensure energy-intensive industries decarbonise, without losing their competitive edge.
Government decides to retain RPI
The retail price index (RPI) is to be retained – but supplemented with a new inflation index, the government has confirmed.
The government recently consulted on a package of options bringing the RPI index in-line with the slower-rising consumer price index (CPI). But in January it confirmed that a new index will be developed to be used alongside the current index.
Businesses receiving payments under the feed-in tariff or Renewable Heat Incentive schemes are awarded payments that rise in-line with RPI inflation, this means subsidies will continue to rise with the higher rate. But the cost of running the UK’s energy networks is also RPI-linked, so their charges will also continue to rise in accord with the higher rate.
ISO4001 accreditation sees significant increase
The number of companies accredited under the ISO4001 environmental management standard increased 6% in 2012, with Chinese companies leading the way. The standard is an environmental management system that aims to help organisations minimise the extent to which their operations negatively affect the environment.
It was reported by newswire Businessgreen on 17 December that more than 250,000 organisations across almost 160 countries are now accredited. Overall, the UK now has over 15,200 companies accredited, placing it fifth worldwide after China, Japan, Italy, and Spain.
Link - Businessgreen
Europe “must recognise economic benefits of energy efficiency”
The European Commission must fully acknowledge the role energy efficiency can play in creating growth and jobs, according to the European Alliance to Save Energy (EU-ASE).
The EU-ASE, a lobby group of businesses including Siemens, Philips, and Schneider Electric, sent a letter to the European Commission on 17 January calling for EU decision-makers to provide the right political, regulatory and financial framework to encourage energy efficiency in businesses.
The group highlighted the EU’s market share in innovative energy efficiency products, saying the EU had 27% of the market, China had 23% and the US had 20%. The group said energy efficiency reduces operational costs, ensures security of energy supply, creates markets and stimulates innovation.