Energy Bulletin
Issue 2

UK energy prices continued to rise throughout the month of September, with long term prices predominantly supported by a volatile carbon market which peaked at just over €25 per tonne on the 10th September. Brent crude oil hit $82 per barrel following heightened tensions between Iran and the US over planned oil export sanctions. OPEC members and Russia met in Algiers this month where all parties agreed not to increase oil production levels. This provided further support to prices over concerns of a tightening global oil market.

Short-term prices found some support from an increase in gas demand and a reduction in renewable output as colder weather conditions start to creep in. Winter ‘18 prices saw the biggest gains due to low gas storage heading into the winter season which intensified supply concerns. This means any colder than normal weather spells over the next couple of months will likely result in price spikes.

Instead of French nuclear concerns being the headline this month, attention turned to nuclear outages in Belgium which will reportedly leave the country with a 2,000 MW supply gap this winter, increasing the risk of blackouts. Neighbouring countries have agreed to help bridge the gap but the supply concerns filtered through to support short-term electricity prices across Europe.

• The 659MW Walney Extension wind farm located just off the Cumbrian coast, has been officially opened, becoming the world’s largest operational wind farm with 87 turbines

• Figures released by the International Energy Agency (IEA) showed that world oil output production reached a record 100 million barrels/day in August and it expects this to increase further are as non-OPEC counties start to ramp up production

• More than 200 organisations have raised concern to the Energy Minister, urging the UK government to continue paying the export tariff to small solar generators

• National Grid is to run a two-year trial of frequency response auctions to begin in June 2019. The operator is to publish its requirements the week before the auction

The September ‘Graph of the Month’ shows the rising trend of carbon emission prices over the last decade which is having a significant impact on European energy markets in recent months.

But what is the reason for the recent upward trend?

Over the course of 2018 the price of carbon credits has more than tripled, reaching above €20 per tonne for the first time since 2011 and peaking at just over €25 per tonne on the 10th September ‘18. The main reason for the rise seems to be the EU’s creation of the “Market Stability Reserve” which begins in 2019. The scheme has been designed to mop up the excess carbon credits in the market and is forcing polluters to chase after a lower number of carbon credits to remain compliant with the scheme. Any party who fails to offset their carbon emissions face large financial penalties.

The EU’s Emissions Trading System (EU ETS) was launched in 2005 as a means of enforcing large utilities and manufacturers to buy carbon credits to offset their carbon emissions. The goal of the scheme was to encourage the switch to cleaner fuels.

However, the financial crisis of 2008 saw the start of a decade long slump in the price of carbon credits as there was a huge surplus in the market. At its lowest point, prices were below €5 per tonne.

Power Purchase Agreements – Export prices are becoming increasingly favourable at around 6-8p/kWh depending on the type of generator and the contract period. Anyone still on the Ofgem default export rate, or with contract renewals coming up within the next year, should be looking to renew now or in the near future. Carter Jonas can negotiate contracts on your behalf to ensure the most competitive price is achieved

Demand for Large Scale Solar – After a few years of slowing demand for solar, the market is potentially set for a comeback as technology costs decline, which means landowners or businesses with on-site electricity usage should act now to secure rental agreements and grid connections. The Feed-in Tariff is also due to close at the end of March 2019 which is an additional incentive to act quickly

Battery Storage Opportunities – The market for behind the meter battery storage and Demand Side Response (DSR) is evolving quickly. The guaranteed income streams are becoming more uncertain, however, the possibility of tying in batteries with Solar PV is making the financial model more favourable particularly for energy intensive businesses

Electric Vehicle Charging Points – The number of electric vehicles entering the UK market is forecast to sour over the next decade and we need to ensure the infrastructure is in place to cope with the demand. Carter Jonas are targeting sites along the major road networks and are working with developers and investors to identify the right locations