Last call for Triads

National Grid have published the three Triad dates for the 2019/20 season, which are listed in the table below. For an eighth consecutive year EIC has successfully called an alert on each of these days.

There was a significant reduction in the number of Triad calls this year with EIC only issuing 13 alerts in total, nearly half the number called the previous winter. This compares favourably with other suppliers who called an average of 24 alerts across the Triad period.

Triads are three half-hour periods with the highest electricity demand between the start of November and the end of February. Each Triad must be separated by at least 10 clear days. This means consecutive days of high demand won’t result in multiple Triads. If consumers are able to respond to Triad alerts by reducing demand then they will be able to lower their final transmission costs.

Lowest peak demand for 27 years

Peak demand is at its lowest point since 1992/93 and is now 14 GW (~24%) lower than the peak of 2010/11. There are a number of factors that have contributed to the fall in peak demand over the past decade. These include improvements to the energy efficiency of appliances, an increase in LED lighting and a rise in embedded generation.

Embedded wind output peaked at 3.4 GW during the Triad period. As embedded generators are connected to local distribution networks, this displaces a similar amount of demand from the transmission network. Therefore, peak demand is typically higher on days with low wind which increases the risk of a Triad occurring. This trend can be seen in the graph below which shows that for every 1 GW increase in embedded wind output there was an associated drop in peak demand of 0.9 GW.

Mild January leads to new record

For the first time since the Triad methodology was implemented, all three Triads have occurred before Christmas. This is mainly due to the mild and windy weather conditions experienced so far in 2020.

In terms of temperature, we’ve seen the mildest January since 2007 and second mildest in past 30 years. Across the Triad season only six weekdays had an average temperature below 3°C with only one of these occurring after Christmas. This compares to 17 the previous winter and 23 for the 2017/18 winter.

Wind generation increased throughout the Triad season with a pre-Christmas average of 6.5 GW significantly lower than the January and February average of 9.2 GW. As the weather conditions in November and December were generally colder and calmer, this increased the probability of Triads occurring during this period. Subsequently, all three Triads fell before Christmas on days when temperatures were below 4°C and wind power was less than 5 GW.

Demand response results in March peak

Peak demand on 5th March was higher than any day within the Triad period which can be seen in the graph below. The weather conditions on this day were demand supportive with an average temperature of 4°C and wind power around 5 GW. In comparison, on the 20th and 21st January weather conditions were similar, however peak demand was around 1.7 GW lower. This demonstrates the effect that Triad avoidance has had on reducing peak demand over the past few years. It also suggests that peak demand may start to increase after next winter without the incentive to consumers of reducing transmission costs. The elimination of a number of embedded benefits for generators is expected to limit the growth in embedded generation which will also have an effect on peak demand.

Demand response also led to a Triad falling between 4:30pm and 5pm, which is the earliest occurrence in 22 years. This Triad was, in fact, missed by one supplier who advised consumers to reduce demand between 5pm and 5:30pm. As some businesses are only able to reduce demand for short periods, the largest volume of demand response is typically seen between 5pm and 6pm. This has the effect of flattening the evening peak and increasing the risk of the peak half-hour falling either side of this window, as was the case on 17th December. All 13 Triad alerts issued by EIC covered the correct HH period, comparing favourably to an average success rate of 78% across other suppliers.

TCR Final Decision

In December, Ofgem published their final decision on the Targeted Charging Review (TCR). The main outcome of this decision is that from April 2021 the residual part of transmission charges will be levied in the form of fixed charges for all households and businesses. This means that there is one final chance for consumers to benefit from Triad avoidance over the 2020/21 winter period.

The TCR aims to introduce a charge that Ofgem considers is fair to all consumers and not just those able to reduce consumption during peak periods. For the majority of consumers these changes will lead to a reduction in transmission costs. However, for those who are currently taking Triad avoidance action it is likely that their future costs will rise.

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Stay ahead of changes as the clocks spring forward

This weekend will see the official start of British Summer Time (BST), as clocks will spring forward one hour on Sunday 29 March 2020. How can IoT controls help you adapt to the clock change?

The clock change accelerates the seasonal trends towards lower demand during the warmer, lighter summer months.

Historically, the scale of peak power reduction following the clock change has been around 10%. However, early forecasts show an expected 5% drop in average demand for the week following the change. An unseasonably mild winter has kept demand levels depressed in general this year.

The advent of demand management and significant developments in energy efficiency and IoT controls have made the UK consumer more proactive when it comes to when and how they use electricity. It can be seen in the graph that overall demand, before and after the clock change, is trending downwards.

The role of renewables

The increase in wind and solar capacity in recent years has contributed to the overall demand reductions. Higher volumes of on-site renewable capacity allow more generation to be provided off-grid as homes and businesses generate their own electricity supply during windy or sunny spells. This reduces demand on the national transmission system. The high levels of solar availability during the summer season were a particularly strong influence on demand levels this year as on-site solar panels increased embedded generation, reducing demand requirements for the transmission network.

Renewables continue to deliver a growing percentage of the UK electricity mix. The 2019 share for wind, solar, hydro and bioenergy electricity sources was 31.8%, up from 27.5% in 2018.

How clock change impacts behaviour

The graph above shows how the peak demand changes before and after the clock change. The earlier evenings cause an increase in electricity demand as consumers use more sources of light and heat. Post-change, a longer day-time means that less lighting is used through the day and also has the effect of pushing daily peak demand to later in the evening.

The graph shows that over the last five years before the clock change, peak demand occurs at around 6.30pm in the weeks leading up. However, once the hour is gained peak demand occurs later in the day, at around 8.00pm on average.

The impact of coronavirus

As the COVID-19 situation has developed it has become increasingly clear that there will be an impact to demand levels. The graph below shows the effect of the temporary closure of schools and some businesses, with peak demand forecast to fall around 1GW on average week-on-week. The combination of the further closure of offices and the clock change will likely see demand drop heavily over the coming week.

React to changes in real-time

How can you best react to changing demand patterns and sources of generation? How can you ensure time-consuming but critical processes affected by the clock change are carried out efficiently?

With IoT-enabled controls, your business can access all the key information about your sites usage on a single platform. This allows you to make instantaneous changes to multiple sites at the touch of a button.

One of our multi-site clients previously spent three weeks making adjustments ahead of the clock changes. This involved engineers attending each site and changing multiple systems. With our system we could make the same changes in a matter of seconds.

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Our Market Intelligence team keep a close eye on the energy markets and industry updates. For the timeliest updates you can find us on Twitter and LinkedIn.

Budget 2020

The new Chancellor, Rishi Sunak, has delivered the first Budget since the UK set its 2050 Net Zero target last year. The previous Chancellor, Sajid Javid, had promised a “green” Budget, however the current health crisis caused by the spread of COVID-19 had cast doubts on how much time Mr. Sunak would spend on energy and the environment.

Below, we highlight key announcements:

Carbon reduction schemes

The government announced a Carbon Capture and Storage (CCS) Infrastructure Fund to establish CCS in at least two UK sites. One by the mid-2020s and a second by 2030. CCS is a technology that involves the capturing of carbon dioxide emissions created by fossil fuels during energy generation. The CO2 can then be transported and stored safely.  There are currently no operational commercial CCS facilities in the UK to date. However, there are a small number of pilot projects currently in development.

The Chancellor also announced a Green Gas Levy, designed to help fund the use of greener fuels. This is in effort to encourage more environmentally-friendly ways of heating buildings through a new support scheme for biomethane. In addition, the Budget stated that the government will increase the Climate Change Levy (CCL) that businesses pay on gas in 2022/23 and 2023/24 (whilst freezing the rate on electricity). It will also reopen and extend the Climate Change Agreement (CCA) scheme by two years.

Further announcements saw the Renewable Heat Incentive (RHI) scheme extended for  two years until March 2022. This is alongside a new allocation of flexible tariff guarantees to non-domestic RHI in March next year. The government said these efforts would “provide investment certainty for the larger and more cost-effective renewable heat projects”.

Electric vehicle infrastructure

Road transport is currently responsible for approximately one fifth of all UK emissions. To reduce this the government has announced investment in electric vehicle charging infrastructure with aims that “drivers are never more than 30 miles from a rapid charging station”.  The government will invest £500 million over the next five years to support the rollout of a fast-charging network.

The government is still considering the long-term future of incentives for zero-emission vehicles alongside the 2040 phase-out date consultation. In the meantime, £403 million will be provided for the Plug-in Car Grant, extending it to 2022/23, with a further £129.5 million to extend the scheme to vans, taxis and motorcycles. In addition there will be an exemption of zero emission cars from the Vehicle Excise Duty (VED).

Natural environment

The Budget has announced a Nature for Climate Fund, which will invest £640 million in tree planting and peatland restoration across England, representing the coverage of an area greater than Birmingham over the next five years. Additionally, the announcement of the Nature Recovery Network Fund and the Natural Environment Impact Fund will each provide avenues for environmental restoration and sustainable development.

Future reading

In the build-up to the COP26 Climate Summit, to be hosted in Scotland later in the year, HM Treasury will publish two reviews. One into the economic costs and opportunities associated with reaching Net Zero and the other into the economics of biodiversity.

In summary

Reactions to the Budget have been a mixed bag. It’s been cited as simultaneously the greenest modern Budget to date and a missed opportunity regarding the larger climate picture. The government has announced a number of positive policies that will begin to pave the way for the Net Zero transition. However, the decision to freeze fuel duty for the tenth year in a row and investment of £27 billion into new roads will be regarded as counter-productive to ambitious targets.

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Our Market Intelligence team keep a close eye on the energy markets and industry updates. For the timeliest updates you can find us on Twitter and LinkedIn.

An update on ESOS Phase 2

The ESOS deadline for Phase 2 was 5 December 2019. Unlike Phase 1, no extra time has been issued to allow for late submissions. Any qualifying organisations who did not complete their assessment and submit a compliance notification by the deadline are at risk of enforcement action. Penalties issued in Phase 1 for compliance failures ranged up to £45,000 with a potential maximum fine of £90,000.

Compliance Notices

ESOS Regulators are currently issuing compliance notices to all UK corporate groups who they believe should have participated but they haven’t yet received a notification of completion from.

If you receive this, you must inform the regulators whether you are;

  • in the process of completing your compliance, or
  • provide evidence you have already submitted your notification, or
  • advise that you do not qualify for ESOS

ESOS submissions

You can find a published list of all businesses who have made a submission via the ESOS notification system as of 1 February 2020 here.

Further evaluation on the effectiveness of energy audits and ESOS can be found here.

ESOS support

If you need urgent support with your Phase 2 compliance, talk to EIC today. Our dedicated team of ESOS Lead Assessors and highly trained Energy Auditors will work hard to help you comply as soon as possible, and support you in any conversations with the Environment Agency.

After ESOS compliance

It’s vital that you don’t let your compliance go to waste. ESOS aims to highlight where companies can make energy improvements, cut wastage and lower costs. Use these opportunities to improve your operations and make significant energy savings. The most common areas for energy savings are lighting, energy management through smarter energy procurement, metering, monitoring and controls, and air conditioning.

SECR

If your business complies with ESOS, it’s highly likely you will need to comply with Streamlined Energy and Carbon Reporting (SECR) too. SECR was introduced in April 2019 as a framework for energy and carbon reporting. Its aim is to reduce some of the administrative burden of overlapping carbon schemes and to improve visibility of energy and carbon emissions for large UK organisations.

SECR can also help businesses on their first steps to meet the UK’s 2050 Net Zero target. Companies in scope of the legislation will need to include their energy use and carbon emissions in their Directors’ Report as part of their annual filing obligations. They will also need to report any energy efficiency actions they have taken within each financial year. If the coronavirus is likely to cause a delay to your accounts, there is guidance here.

Talk to EIC on 01527 511 757 or email info@eic.co.uk if you need any further advice on ESOS or SECR. We’re here to help.

Majestic announces new charity partnership with Habitat for Humanity

Energy and utilities specialist group Majestic Securities Limited (owner of EIC, t-mac Technologies, Monarch Partnership, ESS, Welcome Energy and Smith Bellerby) are pleased to announce their official charity partnership with Habitat for Humanity Great Britain. As a member of the global charity Habitat for Humanity network, their aim is to fight housing poverty around the world.

Majestic has a strong commitment to continuous improvement in sustainable development, helping clients streamline their energy consumption, become more sustainable and manage the cost of utilities efficiently. Across our group of companies our people address the relationship between environmental stewardship, social responsibility, industry expectations, housing services, and business operations.

Our first fundraising initiative is to raise £20,000 and send 10 intrepid adventurers to Cambodia in November 2020 to work alongside a community in Battembang to build a much needed home for a local family. Our team of volunteers will get a rare glimpse of real communities and families, and a huge feeling of satisfaction that their trip will leave a lasting legacy of hope.

Peter Dosanjh, Majestic’s Chairman, says:

“Our vision is for a partnership which ‘builds thriving communities’ so we are thrilled to announce Habitat for Humanity GB will be our charity partner for 2020 and beyond. Each project we become involved with here in the UK and around the world will provide opportunities for employees to invest their time, energy and skills. Whether it’s fundraising in the office or physical labour helping to build homes, I know we will experience a great sense of achievement together. With our group of companies largely supplying utilities to buildings and homes we decided it was time to dedicate our charitable efforts towards something closer to home, quite literally! Habitat for Humanity, like us, believe that a good home is one of the most important things you can have in life.”

www.habitatforhumanity.org.uk/majestic-group/

Tum Kazunga, CEO at Habitat for Humanity Great Britain, adds:

“There is an ongoing struggle in the world to eradicate housing poverty. Millions of people wake up every day without a decent place to live in. With partnerships such as the one with Majestic Group, we are able to get one step closer to our vision of a world where everyone has a safe place to call home. Supporting builds, such as the one in Cambodia, enables us to tackle the housing crisis in areas which would otherwise struggle to cope on their own.”

Habitat for Humanity Great Britain is an affiliate of Habitat for Humanity International network, an international development charity. Habitat for Humanity supports the most marginalised and vulnerable, helps families access finance and fight for land rights for women, upgrade urban slums and informal settlements, improve access to water and sanitation, and help communities become more resilient in the face of natural disasters. Working in nearly 70 countries, since 1976 they have helped over 20 million people.

t-mac Relaunch

Our sister company t-mac Technologies Limited (t-mac) has re-launched into the metering and controls marketplace. The energy and building insight specialist is a brand in its own right once more.

t-mac logo

How does t-mac work?

t-mac’s IoT technology seamlessly connects building hardware systems with dynamic software. This enables users to remotely manage utilities including electricity, gas and water, as well as heating and ventilation systems.

It works by connecting and continually monitoring meters, sensors and equipment, and shares real-time performance data via a single online platform. This provides users with the ability to fully manage their utility use and machinery. The system can also serve as an early warning device and flag faults or energy inefficiencies.

Wates Sustainable Technology Service Partner

t-mac was recently named as a partner with Wates as part of the Wates Sustainable Technology Service (WSTS) initiative. The initiative supports customers of the Wates Group – one of the UK’s largest privately-owned construction and property services companies – in achieving their sustainability goals. The WSTS helps identify and implement sustainable technologies that comply with regulations, lower carbon emissions and improve building performance.

EIC Intelligent Building Solutions

EIC installs and delivers t-mac hardware and software solutions as part of our Intelligent Buildings offering. t-mac solutions range from simple metering and monitoring to complex Building Management Systems (BMS) controls.

You can find out more about our Energy Intelligence solutions by downloading our free guide in the resource section of our website here.

Weekly Energy Market Update – 10 February

Gas

Short-term gas contracts, notably the Day-ahead and front-month markets, fell heavily again last week, with losses of around 9%. The driving force in the gas market remains the very healthy fundamentals, lower than expected demand and risk of oversupply. A brief spell of below average temperatures and low winds had no price impact, while declines accelerated again when temperatures climbed at the end of the week and wind output surged to more than 13GW as Storm Ciara arrived in the UK.

Flexibility within the gas supply network is minimising the impact of higher demand across the winter, particularly from LNG sendout, which rose above 100mcm again last week. Nineteen tankers are now booked for February arrival. Record low LNG prices across the global market are contributing to a substantial oversupply. Asian LNG prices have more than halved year-on-year as Chinese demand tumbles amid fears over the spread of the Coronavirus.

Higher heating demand this week is likely to be offset by continued high winds, reducing the use of gas for power generation. March and April gas prices are down to 22p/th while the Summer 20 contract has halved in value since the start of winter, falling from 46p/th to 23p/th. Longer-dated gas contracts moved higher, with gains of 3-4% across the week. This was in line with a rebound in the crude oil market, which bounced off one-year lows amid ongoing speculation over the spread of the Coronavirus. Fears over lower demand from the virus has weighed on commodity prices for the last few weeks.

Power

Day-ahead power prices ended the week below £30/MWh for only the third time in ten years as the UK experienced very high wind levels at times last week. Day-ahead prices started the week higher, rising to £37/MWh as weather conditions were cooler with wind output dropping below 2GW. However, as Storm Ciara reached the UK at the end of the week, wind generation jumped to peaks of more than 13GW. On Saturday wind generation averaged 12GW across the day. The strong renewable availability reduced the share of gas in the fuel mix, with CCGT burn halving from 16GW to 8GW in one day.

Higher levels of embedded generation from the strong winds also affected electricity demand. After peaking at 45GW early in the week, peak demand fell to 42GW by Friday. Wind output is forecast to remain consistent around 12-13GW for the first few days of this week. Power prices for Tuesday have dropped to £28/MWh, testing 13-year lows for the prompt market. The
continued declines in the gas market is reducing the cost of gas-fired generation, and driving the front of the power curve to new lows. March 20 prices fell 5% week-on-week with the Summer 20 market hitting new lows at £33/MWh. The rest of the electricity curve saw little change, drawing some support from gains in longer-dated gas contracts and the oil market.

T-3 Capacity Market auction clears at new lows

The T-3 Capacity Market (CM) auction has cleared at £6.44 per kilowatt per year, marking the lowest outturn for a T-3 auction to date. The result will guarantee capacity for delivery over winter 2022/23.

A required capacity of 44.2GW was made available to bidders representing a total 59GW of derated capacity. The final result saw National Grid ESO procure 45.1GW of capacity.

The T-3 auction is the first since the reinstatement of the CM in October 2019. Two further auctions are scheduled for this year; a T-1 auction commencing 6 February and a T-4 auction to start 5 March.

The Market was originally suspended in November 2018, following a ruling from the European Court of Justice that the design of the scheme was biased against small-scale, clean energy units and therefore should not be eligible for State Aid approval. However, the ensuing investigation carried out by the European Commission reconfirmed its eligibility, enabling the Market to be restored.

Capacity Market consultation launched

Following the recent reinstatement of the Capacity Market the Department for Business, Energy and Industrial Strategy (BEIS) has launched a consultation on proposed changes to the scheme. The government hope to implement improvements to the CM’s design to reflect recent market and regulatory developments.

In summary, the government proposes to:

  • Allow all types of capacities to apply to prequalify to bid for all the agreement lengths available in the Market, provided they can demonstrate they meet relevant capital expenditure thresholds.
  • Reduce the minimum capacity to participate from 2MW to 1MW.
  • Legislate the government’s commitment to procuring at least 50% of the capacity set-aside for the T-1 auction.
  • Incorporate any new capacity type into the CM that can demonstrably contribute to the generation adequacy problem.
  • Establish a reporting and verification mechanism for the carbon emission limits to be applied to the Market.
  • Remove the exclusion of plants with Long-term STOR (Short-term operating reserve) contracts from the CM.

The consultation will conclude on 2 March 2020.

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Weekly Energy Market Update – 20 January

Gas

Gas prices fell heavily again last week with contracts across the curve falling to new lows. Price drivers for the market are unchanged with the extent of oversupply and strength of fundamentals continuing to weaken prices. Balance of Winter and Summer 20 prices fell 7% across the week, with losses continuing today. The Summer 20 contract has dropped nearly 40% in the last three months. The oversupply is being driven by record storage stocks in the UK and Europe. Unseasonably mild temperatures so far this month, coupled with very high wind levels have depressed demand.

Meanwhile record LNG imports have balanced the gas system with minimal use of storage withdrawals or Interconnector imports from Europe. Price falls this winter have been strongest for the Summer 20 contract, which anticipates very limited injection demand and an inability to absorb excess supply during the milder months. The strength of losses in short-term contracts have now brought down the rest of the curve with seasonal 2021 contracts down 5% across the week, breaking below their previous December lows.

Gas demand has risen sharply today with consumption rising around 80mcm from last week, as temperatures briefly drop to below seasonal-normal levels. Lower wind output of under 5GW this week is also increasing gas for power generation. However, the demand is being comfortably met by supply, notably from LNG, which has risen to more than 130mcm to match the higher demand. This underlines the strength of flexibility within the gas supply system. Milder, windier conditions are returning at the end of the week.

Power

In the power market, contracts on the curve are following the gas market lower, reflecting the declining costs of gas for generation. Very high winds pushed Day-ahead power prices to new lows of £32/MWh but the prompt has risen across the week in anticipation of higher demand from lower winds and colder temperatures this week.

Wind generation across the week was consistent at over 8GW, reaching highs of 14GW as Storm Brendan swept across the UK. Power demand is expected to rise this week as temperatures have dropped to below seasonal-normal levels with wind output as low as 2GW. However, the extensive gas supply flexibility offered by record storage stocks, LNG and Interconnector imports is weighing heavily on prices.

Prices across the curve are down 3% week-on-week. However, the losses in the power market are more gradual than the corresponding gas contracts. This is the result of price support from rising carbon prices, protecting the power curve from further losses. Carbon costs pushed above €25/tCO2e last week, to new highs for the year.

 

Weekly Energy Market Update – 13 January

Gas

Gas prices on the curve moved lower week-on-week, with the market close to the record contract lows seen at the end of December. However, price movement was more volatile after gains of as much as 10% in the aftermath of the US air strike in Iran. Those gains had been fully reversed by the middle of last week. Concerns over supply disruption in the region, and possible LNG exports from Qatar eased, with the strength of fundamentals within the market returning to focus as the biggest price driver.

Declines across the gas market seen since October have accelerated in recent weeks as the extent of oversupply in the system became more apparent. After reaching eight-year highs in December, LNG imports continued to flood into the UK in the first half of January. Gas demand levels have been unseasonably low amid above average temperatures and very strong wind levels. The record low levels attracted some buying interest, while reduced LNG sendout and Norwegian imports via Langeled left the system undersupplied on some occasions. This provided some price support with the market bouncing off those lows late last week, with a continued modest recovery today. However, prices remain close to historical lows, with the fundamental outlook for the gas market remaining highly bearish. Losses were strongest on the front of the curve with the February market and Summer 20 prices down 7% week-on-week.

Prolonged above average temperatures are forecast in January while the UK and Europe is set to end winter with record levels of gas in storage which will affect injection demand during the milder summer months. Storage withdrawals and Interconnector imports have been largely untouched throughout winter, but can provide substantial supply flexibility and spare capacity as required.

Power

Power prices have mirrored movements in the gas market. A bounce across the energy mix in the aftermath of the US air strike in Iran has been reversed with contracts pushing back towards the lows seen at the end of December. The very low cost of gas-fired generation, particularly this summer, is weakening electricity contracts.

The February power market fell 5% across the week with seasonal power contracts for 2020 down 4%. Elevated carbon prices, which remain above €24/tCO2e are underpinning the power market, slowing the extent of declines relative to gas. However, the downward pressure on electricity prices continues, with very high renewable availability providing further bearish signals.

Day-ahead power prices rose across the week as demand increased from their holiday lows. However, at £36/MWh, the prompt market remains highly depressed, below the trading range seen during most of the summer season. Furthermore, while electricity consumption rebounded to 45GW last week the outlook for consumption remains very weak because of the near-record levels of wind generation.

Forecasts of up to 14GW of wind generation throughout the coming week is driving down demand. The high levels of on-site embedded generation from wind is reducing demand on the transmission network. Peak power demand this week is forecast at just 43.0GW, a drop of 4GW compared to the same week last year. The high winds are expected to continue until Friday as Storm Brendan sweeps across the UK. Weather conditions are set to shift next week as winds drop and temperatures cool from current above average levels.

 

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Our Market Intelligence team keep a close eye on the energy markets and industry updates. For the timeliest updates you can find us on Twitter and LinkedIn.

Weekly Energy Market Update – 6 January

Gas

Gas prices on the curve rebounded last week, bouncing off contract lows reached between Christmas and New Year.

Prices across Europe pushed to new lows after a new transit supply agreement between Russia and Ukraine was agreed, avoiding supply disruption.

The Summer 20 market dipped below 30p/th, down 10% since Christmas. However, contracts across the curve have rebounded since Friday, following supply risks linked to escalating tensions in the Middle East. A US air strike has killed a top Iranian military general. Tehran has vowed “severe revenge” with the risk of disruption to the region’s vast oil supply providing some price support.

LNG may also be affected by a possible new conflict with the US and Iran previously rowing over access to the Strait of Hormuz, a crucial supply route for tankers. Strong gains in the oil market – which is testing highs of $70/bbl – provided support to longer-dated gas prices, delivering in 2021. While there may be further volatility as the situation develops, fundamentals remain bearish, with oversupply capping prices around their pre-Christmas lows.

LNG imports were at their highest since April 2011 in December, while thirteen tankers are already confirmed for January arrival. Interconnector imports remain untouched and a storage overhang is inevitable as lower demand during the holiday period meant 3TWh of gas was injected into storage.

UK gas reserves are over 95% full and at record highs for the time of year. Demand forecasts for January are also price depressive with above average temperatures expected for at least the next two weeks while wind generation dominated the fuel
mix, providing a third of UK power in the last week after averaging over 10GW a day. With energy demand in the short-term expected to be low the risk of oversupply and an inevitable storage overhang is still weighing on gas markets.

Power

Power prices pushed lower during December led by Day-ahead and balance of winter contracts that reflect the oversupply in the gas market and lower cost of gas-fired generation. Electricity demand fell heavily over the Christmas holiday period, driving Day-ahead power prices to lows of £32/MWh, not seen since early October.

While consumption has picked up as schools and businesses return to full operation, power demand maintains a significant reduction to previous years. Very high wind generation over the last week has reduced the use of fossil fuels, while the gas burn being utilised is at a low cost level.

Wind has provided a third of UK electricity so far this month, leading the fuel mix with average output of 10GW a day. The strong renewable availability is forecast to continue this week as the UK benefits from windy, mild weather conditions, which are providing downward pressure to prices. This is the reverse of the cold, low wind scenarios that risk higher prices
during the winter season.

Across the curve, power prices followed the gas market lower over the holiday period, hitting new lows at the end of December. The market has rebound marginally since Friday following the escalating tensions in the Middle East. However, the scale of movement in power, both lower and in the rebound have been more gradual than in gas. The continued elevation in carbon prices, which are holding above €24/tCO2e are helping to underpin the power market. Week-on-week electricity contracts remain down with the Summer 20 contract under £40/MWh.

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Our Market Intelligence team keep a close eye on the energy markets and industry updates. For the timeliest updates you can find us on Twitter and LinkedIn.

UK Energy Policy in 2020

Following the results of the UK General Election, it will be the Conservative Party responsible for delivering the net zero target and a green economy. The Conservatives made positive pledges to invest in green jobs, low carbon infrastructure and investment in energy efficiency.

Their Manifesto promised that the first Budget in 2020 will prioritise the environment and contain investment in research & development, decarbonisation schemes, new flood defences, electric vehicle infrastructure and clean energy. The Budget date is to be confirmed, but will likely take place in early Spring.

White Paper

The Department for Business, Energy and Industrial Strategy (BEIS) intend to release an Energy White Paper, which is expected in Q1 2020. It will detail the country’s strategy to achieving net zero emissions by 2050.

Energy Secretary, Andrea Leadsom, has said that BEIS are currently evaluating a number of different approaches. This will include decisions on renewables, nuclear levels and the role of carbon capture, usage and storage.

The White Paper is expected to yield further policy indications on a range of energy and environmental issues that are currently unclear.

COP26

The 26th session of the Conference of the Parties (COP26) to the United Nations Framework Convention on Climate Change (UNFCCC) is scheduled to take place 9-19 November 2020 in Glasgow.

The UK will host the main COP summit, which will enable world leaders to discuss actions to tackle climate change and serve as a spotlight on how far the government’s climate policy decisions have come. Claire Perry, the previous Minister of State for Energy and Clean Growth, will preside as the UK nominated president for the event.

Second Balancing Services Charges Taskforce

Ofgem formed the first Balancing Services Charges Taskforce, in collaboration with the Electricity System Operator, back in November 2018. The main goal of the Taskforce was to investigate the future direction of Balancing Services Use of System (BSUoS) charges.

The Taskforce found that the BSUoS charge does not currently provide any useful forward-looking signal. This makes the charges hard to forecast, reducing the influence of the charge on user behaviour.

With this information, the Taskforce assessed whether individual elements of BSUoS have the potential for being charged more cost-effectively and hence could provide a forward-looking signal. However, whilst it was concluded there were theoretical advantages to options suggested, it remained that the implementation would not or could not provide a cost-reflective and forward-looking signal that would drive efficient and effective market behaviour.

The first Taskforce concluded that it was not feasible to charge any of the BSUoS components in a more cost-reflective and forward-looking manner that would effectively influence behaviour to help the system and/or lower costs to customers. The group recommended that all costs included with BSUoS should be treated on a cost-recover basis.

Taskforce key deliverables

The new Taskforce will aim to assess who should pay BSUoS charges, how these charges should be recovered and how principles from the Targeted Charging Review can be applied. In order to achieve this the Taskforce has compiled five deliverables:

  1. Consideration and assessment based recommendation as to who should pay balancing services charges
  2. Investigation and recommendation for recovering balancing services charges, including collection methodology and frequency
  3. Produce interim report providing detailed reasoning and any relevant analysis behind the initial conclusions
  4. Consult on the interim report providing an opportunity for stakeholder comment
  5. Issue a final report including consideration of stakeholder consultation responses providing a final recommendation on who should pay, the design of balancing services charges and potential timescales for implementation

The final report, containing the recommendations to Ofgem, is scheduled to be published in June 2020.

Electric Vehicle Smart Charging consultation response

On 15 July 2019 the Government published a consultation on Electric Vehicle Smart Charging. This was to seek views on the outline of the current approach and objectives for the implementation of smart charging systems for electric vehicles (EVs).

The Government believes that the encouragement of consumer uptake and innovation is necessary to meet future targets. To this effect, the Government’s overall aim is to maximise the use of smart charging technologies to benefit both consumers and the electricity system, whilst supporting the transition to EVs.

The consultation states that without government intervention, it is unlikely that smart charging will be taken up at the rate required to achieve the full potential benefits. This could lead to the risk of varying standards and inadequate protections for the grid and consumers.

The long and short-term plans for smart charging

The Government provided detail on both short and long-term plans for smart charging. The approach for Phase One of the project would see new non-public charge points required to have smart functionality, compliant with the British Standards Institution.

Phase Two is a work in progress, as the Government seeks views on what the long-term approach for operational requirements should be, with some potential options. The consultation proposes that a decision should be made between 2020 and 2022.

A potential response to the consultation is expected in 2020 and would dictate the rate and method of rollout of new EV infrastructure across the country in the future.

Review of Default Tariff Cap

The initial default tariff cap came in effect on 1 January 2019. It was designed as a temporary cap on standard variable tariffs and fixed-term default tariffs. In accordance with the licence requirements, Ofgem run an update progress twice a year. This is so the default tariff cap reflects changes in the cost of supplying energy.

On 7 August 2019, Ofgem updated the cap levels to come into effect for the third charge restriction from 1 October 2019 to 31 March 2020. A fall in wholesale costs saw the level of the cap reduce from £1,254 to £1,179 for this period.

The default tariff cap is intended to be a temporary measure, with an upcoming review next year on whether it is still fit for purpose. The cap will remain in place until at least the end of 2020. The government will be able to choose whether to extend the cap beyond this, up to a maximum of 2023.

Dermot Nolan, Chief Executive of Ofgem, said, “The price cap requires suppliers to pass on any savings to customers when their cost to supply electricity and gas falls.

He added, “This means the energy bills of around 15 million customers on default deals or pre-payment meters will fall this winter to reflect the reduction in the cost of the wholesale energy. Households can cut their bills further in time for winter, and we would encourage all customers to shop around to get themselves the best deal possible for their energy.”

CCC to publish Sixth Carbon Budget

The Committee on Climate Change (CCC) is scheduled to publish its recommendation on the level of the Sixth Carbon Budget in September 2020.

The Sixth Carbon Budget, required under the Climate Change Act, will provide ministers with advice on the volume of greenhouse gases the UK can emit during the period 2033-2037. The Budget will set the path to the UK’s net-zero emissions target in 2050, as the first carbon budget to be set into law following that commitment.

CCC Chairman, Lord Deben, advised the Government of the Committee’s intention in a letter to the Exchequer Secretary to the Treasury, Simon Clarke MP.

The letter sets out the Committee’s expectations for the Treasury’s planned review of how the costs of the transition to a net-zero economy by 2050 can be funded and distributed fairly.

The Committee called on the Treasury to conduct the review in its May 2019 advice to Government on setting a net-zero target for the UK. The Committee sees the review as crucial in ensuring a successful transition and recommend that the review is a key input to next year’s spending review and budget, and longer-term policy direction.

Lord Deben’s letter also recommends that the Treasury review develops a plan for funding decarbonisation and examines the distribution of costs for businesses, households and the Exchequer.

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