Energy Bulletin
Issue 11

Short term energy prices swung frequently throughout June as weather changes and outages affected the supply and demand balance. The heatwave across much of Europe pressured prices down to fresh two-year lows as the UK remained windy and sunny which helped ramp up renewable generation.

However on Monday 24th June, the UK electricity system price spiked due to a combination of a shortfall in generation and higher demand than expected. Prices reached £375/MWh for more than an hour before easing back as the grid rebalanced.

Warmer than average weather is forecast to return to the UK and much of Europe towards the middle of July which will likely push short-term prices further down.

Long-term energy prices have had a less volatile month, however a rise in oil and carbon prices has provided some support. Oil markets surged in the latter half of the month, primarily on the back of rising tensions between the US and Iran which added uncertainty to the oil supply from the Middle East. Further support came from reports that US oil inventories have fallen by a larger amount than expected. As tensions continue, the volatility in prices looks set to continue into July.

Carbon rose last week after staying pretty stable throughout the rest of the month. This rise came as a result of higher coal usage on the continent which increased demand for EUA certificates. We are likely to see further increases in carbon prices if we witness a further heatwave in July.

• Tesco is to install 5MW of rooftop solar PV across its UK site portfolio after securing a Power Purchase Agreement (PPA). The supermarket has also been taking part in a trial alongside the University of Lincoln to see if its freezers could be used to provide a nationwide “virtual battery” and help balance the grid.

• Brexit tops energy professionals’ concerns, as it could leave the UK ‘short of energy’ due to EU nations potentially restricting gas exports to the UK during winter cold snaps in order to prioritise their own citizens. A further concern is that EU nations would also have the ability to impose tariffs on their gas and electricity exports to the UK post-Brexit.

• Coal continues to falter as SSE reveals plans to fully close Fiddler’s Ferry, its last remaining coal-fired power station by 31 March 2020, taking 1.5GW off the system. The owners stated that financial losses have “deteriorated to unsustainable levels”.

• Wensleydale Cheese waste to be used to produce biogas. Fund manager Iona Capita has signed up the Wensleydale Creamery (at Hawes, in the Yorkshire Dales) and will use the creamery’s whey by-product as feedstock for Iona’s Leeming biogas plant. The venture will in turn produce 10,000 MWh of thermal power, enough to heat 800 homes per year.

On the 27th June, the UK became the first major economy in the world to pass laws to end its contribution to global warming by 2050. The target will require the UK to bring all greenhouse gas emissions to net zero within the next two decades, compared with the previous target of at least an 80% reduction from 1990 levels. The target comes just weeks after it was recommended by the Committee on Climate Change, the UK’s independent climate advisory body.

Net zero means any emissions would need to be balanced by schemes to offset an equivalent amount of greenhouse gasses from the atmosphere, such as planting trees or using technology like carbon capture and energy storage.

The bold move by the government will now require a strong policy commitment to stimulate decarbonisation across all sectors of the economy. There is already concern surrounding how little detail there has been about precisely how the target is going to be met along with conflicting renewable energy policies. A few of examples include:

1. A current block on onshore wind farms. Government ministers face rising calls to lift their block on onshore wind farms in England to help meet the targets. Investors are warning that it may be stifling investment into the UK’s clean energy sector.
2. The closure of the Feed-in Tariff scheme. Following the closure in March, the number of residential installs has collapsed. Just 3.6MW of domestic solar was installed in April, which has prompted calls for urgent action to fix the renewables “policy void.”
3. The proposed hike in VAT for residential PV from 5% to 20%. The planned change by the Treasury would come into force from October 1st and again contradicts the government’s climate commitments.

Electric Vehicle Charging Points – The installation of EV charging points is a great way to future proof your site as the market is set to soar over the next decade. Securing grid capacity early is key as this could restrict future deployment. Return on investment can be sought through the owning and operation of charging points, or the lease of a site to an operator for an EV charging service station. Download our brochure here.

Solar PV – Carter Jonas is actively site finding and advising clients on the development of over 50 sites that will enable the development of over 750MW of subsidy free solar schemes across the UK. For high energy users, self-development options are also still available beyond the closure the FIT scheme in March 2019.

Battery Storage – The market for behind-the-meter battery storage and Demand Side Response (DSR) is evolving quickly. The income streams are becoming more uncertain, but the possibility of tying in batteries with Solar PV is making the financial model more favourable, particularly for energy-intensive industries with an annual electricity spend of higher than £100,000.

Gas and Electricity Brokerage – Volatility in wholesale markets, combined with rising non-commodity charges, could force energy prices up 50% by 2020 compared to 2016 prices, according to recent figures. Carter Jonas can help manage these risks by working with businesses to produce an energy strategy and ensure they are not only getting the most competitive price through our brokerage service, but also taking advantage of other potential income streams. Find out more here.

Agency & Investment Opportunities – Carter Jonas has advised on over £45m of energy agency transactions over the last 12 months. Whether you are seeking energy investment opportunities, have assets to sell, or would like advice on the marketability and potential valuation of sites or operational assets, our Energy Agency team would be delighted to assist.