Gas and Power Drop Following Warmer Winter
Gas and Power Drop Following Warmer Winter
This January, temperatures have been on average 15% higher than the seasonal norm, contributing to lower demand for power and gas. Alongside this, falling oil prices have pulled the annual power and gas contracts down. Short-term prices have been lower with high LNG supply and nuclear outages. Annual April 14 baseload power decreased 1.2% to a monthly average of 52.5/MWh in January. Annual gas was pushed down with falling oil prices and high LNG supply. Monthly average annual April 14 gas was down 1.5% to 67.2p/th. The contract is now 1.2% below last year's level.
Crude oil and annual wholesale gas and power prices graph
On the commodity front, monthly average Brent crude oil dropped 2.8% to a monthly average of $107.6/bl as supply concerns eased in Libya and progress on an international deal with Iran continued. The contract fell to a two-month low of $106.2/bl on 24 January. Carbon prices climbed 3% to a monthly average of 5.0/t in January, as the EU finalised back-loading proposals and set out 2030 emissions reduction targets. On average coal prices rose 2.9% to $85.1/t in January. The contract reached a six-month high of $86.5/t on 17 January.
Short-term power up despite a fall in gas
Extensions to planned nuclear outages combined with lower wind output to drive short-term baseload power prices upwards. Month-on-month the day-ahead power contract rose 6.7% to average 53.1/MWh in January. The contract is now 4.7% higher than the 2013 average of 50.7/MWh.
In contrast, short-term gas prices decreased during the month as a result of high LNG deliveries and lower demand. Day-ahead gas prices dipped 5.1% to average 65.9p/th in January.
Spot power prices and temperatures graph
Supply concerns could increase prices
European gas prices could rise following the decision by the Dutch government to scale back the production at the Groningen gas field, one of the largest in Europe, following earth tremors near the site.
A number of nuclear power stations are scheduled for outages in February, which could reduce supply and increase short-term electricity prices next month.
Annual gas prices saw downward movement over the month following falling oil prices. Annual April 2014 gas prices dropped 1.5% to 67.2p/th over the month. The summer 2014 contract decreased 2.6% to a monthly average of 63.4p/th.
Annual gas prices graph
Spot gas prices fell over the month with lower demand and high LNG supplies. Day-ahead gas prices fell to a three-month low of 63.0p/th on the 28 January, but averaged 65.9/th over the month. Month-ahead gas prices were down 5.7% to a monthly average of 67.3p/th.
Spot gas prices graph
Annual electricity prices fell despite the rise in carbon and coal markets. Annual April 2014 power dropped 1.2% to a monthly average of 52.5/MWh. Similarly the summer 2014 electricity contract fell 2.5% to an average of 48.9/MWh in January.
Annual power prices graph
Day-ahead power prices rose month on month as a result of nuclear outages. Day-ahead electricity prices climbed 6.7% to an average of 53.1/MWh. But month-ahead power prices dropped 3% to an average of 54.2/MWh.
Spot power prices graph
Key Market Indicators
Europe decides against national renewables targets
The European Commission outlined on 22 January its objectives for climate and energy policy through until 2030.
The EU currently has three targets to be attained by the end of this decade: to reduce greenhouse gas (GHG) emissions below the 1990 level by 20%; to increase renewables share of the energy mix to 20%; and to improve energy efficiency by 20%.
If approved, the new framework for 2030 will implement a binding GHG reduction target of 40% below the 1990 level. This, the commission said, will be achieved through domestic measures, including a reduction in the cap on emissions in EU Emissions Trading Scheme (EU ETS). It also sets a target for renewables of at least 27% in 2030. But, while the target will be binding for the bloc as a whole, there will be no mandatory targets for member states.
The framework does not yet put forward an energy efficiency target; though it notes that the European Commission is due to review the Energy Efficiency Directive later this year.
The Commission has also proposed to establish a market stability reserve at the beginning of the next EU ETS trading period (2021). The Commission hopes that this will help address the surplus of emission allowances in the scheme.
Energy costs rising
Alongside the framework, an analysis of EU energy prices was published. It notes that, between 2008 and 2012, there was a significant increase in retail electricity and gas prices for both households and businesses.
According to the report, retail electricity prices for industry across member states have risen by 3.5% a year and gas prices for industry have risen by less than 1% a year. But over the same period, wholesale electricity prices declined by a third and wholesale gas prices remained largely the same. The driver for the increased retail prices was, according to the report, higher network tariffs and energy taxes/renewable subsidies.
The analysis also predicts that energy prices will continue to rise in the short term mainly owing to rising fossil fuel prices as well as the need to invest in networks and in new power generation.
The reports are to be debated by the European Council in late March, and later by the European Parliament.
The framework delivered much that the UK government had hoped for, including a rebalancing away from mandated measures. The document on energy costs provides a useful comparison between prices paid in EU member states.
Government seeks views on competitive renewables funding
The government confirmed last month it is pressing ahead with plans to require established renewables technologies to compete for funding under the contracts for difference (CfD) regime.
The government originally signalled its intention to implement the CfD scheme a cornerstone of its Electricity Market Reform package with a first-come-first-served allocation system for funding. But in a consultation, launched on 16 January, the government said competitive allocation of funds, at least for more established technologies, would ensure value for money for consumers and that the most efficient projects should receive funding first.
CfDs are intended to be introduced later this year and will provide guaranteed payments to operators of low-carbon generation technologies. The arrangements will allow the system operator to claw back money from generators when market prices are high and low-carbon plants are able to cover their costs without additional support. This will limit generators exposures to volatile wholesale electricity prices.
Under the latest proposals, established technologies including onshore wind and solar photovoltaics will have to submit a bid representing the lowest strike price per megawatt hour that they would be willing to accept. Projects with the lowest bids will then be allocated CfDs until the budget has been exhausted.
But the government felt that exposing all renewables technologies to competition could lead to inadequate deployment of less mature technologies, prematurely diminishing their prospects of making an impact in the future. Instead it proposed that less established technologies, including offshore wind, wave, tidal stream, and geothermal, will be able to apply for a CfD on a first-come-first-served basis.
Responses to the consultation are requested by 12 February.
Introducing competition into the allocation of CfDs should help keep the costs of the reforms as low as possible. But the government has acknowledged that not all renewables technologies are starting out on an even footing.
Ofgem to investigate electricity distributors storm response
The regulator has confirmed it will conduct an investigation into the response of the UK's power distribution network operators (DNOs) to the storms that resulted in wide spread power cuts over the Christmas period.
The supply disruption also led an influential committee of MPs to take evidence from Ofgem and DNOs to ensure processes had been put in place to manage weather-related emergencies.
At the hearing on 21 January, Ofgem interim CEO Andrew Wright told MPs that reliability of the UK's electricity networks had improved significantly over the last decade and that improvements had also been made in relation to response times during storms. But he confirmed that the regulator was independently undertaking a review of the storm response ?to get to the bottom of what happened. As part of this review, Ofgem will also assess the way in which compensation payments are awarded to customers that suffer a loss of service.
The Ofgem findings will be published in March.
Government plans micro business redress reforms
The government opened on 7 January a consultation on amending the Gas and Electricity Regulated Providers (Redress Scheme) Order 2008 “to help smaller businesses”.
The Order requires licensed energy providers who supply domestic and micro business customers to join a redress scheme operated by the Ombudsman Service: Energy. This enables those businesses to access a redress, or compensation, scheme in the event that they are unable to resolve a complaint with their energy supplier directly.
The Order's existing definition of a micro business is those companies that typically spend 5,000 on energy each year these companies already have access to the same form of redress arrangements as domestic customers. But the government plans to extend this definition.
The government proposes that the definition will be amended to instead cover micro businesses that spend up to 10,000. This will be achieved by changing the consumption level in the definition to no more than 100,000kWh of electricity per year (up from 55,000kWh at present), or 293,000kWh of gas per year (up from the current level of 200,000kWh).
Responses are invited until 14 February.
Up to 150,000 businesses could benefit from this change, which mirrors those being sought by Ofgem to provide a range of safeguards for the UK's smallest businesses.
Government should champion foundation industries: PwC
The government must take action to nurture the economic growth of Britain's foundation industries defined as those involved in the manufacture of chemicals, metals non-metallic minerals, and wood and help them to mitigate the impact of rising energy prices, according to a new PwC report.
Commissioned by Tata Steel, the report Understanding the Economic Contribution of the Foundation Industries, which was published last month, said that, despite significant improvements in energy efficiency, energy costs remained a significant element of the overall costs faced by energy-intensive industries.
While international comparisons were difficult to make, the report said that recent evidence indicated that base electricity prices for UK energy-intensive industries were higher than in France and Germany, and significantly higher than in Russia and the US. These differences were found to reflect several factors: differences in supply mix, distribution and transmission costs, non-energy taxes and market structure.
The report called on the government to support the strengthening of supply chains, including through implementing strategic approaches to public sector procurement. It also wants to ensure a level playing field is created, allowing these businesses to compete effectively in global markets.
But the study acknowledged that increased volatility in energy prices had the potential to bring opportunities as well as threats. It said that supply difficulties and the public demand for more environmentally-attractive products could drive innovation and heighten the importance of sustainable manufacturing, suggesting that new business models could be created.
£10mn boost for business energy innovation
British businesses could benefit from a share of 10mn to help bring new and innovative energy products to market, climate change minister Greg Barker has announced.
The government launched the latest phase of its 35mn Energy Entrepreneurs Fund on 28 January, inviting applications for funding from businesses that develop or improve existing energy efficiency, electricity storage or power generation technologies. Small and medium size enterprises have been invited to bid for up to 2mn of funding to help them bring a product to market. Applications will be assessed against a range of criteria, including the ability to cut the cost of existing technologies, future carbon savings and commercial viability.
Barker said the funding will give businesses a vital boost and help drive forward the development of a range of innovative low-carbon technologies.
Business owners question rising energy costs
More than eight in 10 (83%) of business owners fear that energy suppliers are "taking advantage" of them with recent price increases, a new survey has shown. Issued on 27 January, the Close Brothers Business Barometer suggested that businesses were "uneasy" about the latest set of price increases, while over half were also sceptical about the purpose of "green taxes".
David Thompson, chief executive of Close Brothers Invoice Finance, said it was understandable that business owners wanted to see greater transparency around their energy bills so that they could ensure they were receiving the best value for money.
Energy audits to bring business benefits
Businesses could benefit from thousands of pounds of savings on their energy bill following the launch of a new energy audit programme by NatWest.
Following a successful pilot scheme in the north of England, NatWest and Mentor, RBS Group's business consultancy service, announced the national launch of a new energy audit programme on 27 January. The programme designed to help businesses cut their energy bills will help businesses identify where savings can be made and help them increase staff engagement and implement energy saving initiatives.
The service is backed by the bank's energy loan scheme, which offers businesses funding to support the installation of renewables and energy efficiency technologies.
Consumer satisfaction in energy markets drops to new low
Consumer organisation has called for "radical" energy market reform, as its latest customer satisfaction survey showed confidence in the sector continuing to fall. Issued on 20 January, the survey showed the overall customer score for energy companies had dropped eight percentage points to 41% in 2013 one of the lowest average scores that a Which customer survey has produced. The Big Six occupy the lowest places, but the top spot was shared by Good Energy and Ecotricity. But Which executive director Richard Lloyd said there were "no winners" in a market that consistently failed consumers.