UK ENERGY MARKET REMAINS VOLATILE AS THE COUNTRY MOVES INTO PARTIAL LOCKDOWN

Power lines
Record low prices were once again seen in UK power markets in April. The drop came as a result of low demand due to current lockdowns and strong renewable generation, particularly from wind and solar. Volatile US oil markets added some further pressure to prices as they turned negative for the first time ever as traders paid to not take delivery in the face of full storage sites and diminishing demand. A rebound in UK power price towards the end of April indicates that we may be seeing early signs of the market recovering, however, volatility remains likely.

NEW RECORD FOR LONGEST PERIOD OF COAL-FREE ELECTRICITY GENERATION IN GREAT BRITAIN

Solar panel
National Grid ESO announced the news on 28th April after the UK marked over 438 hours and 10 minutes since the last coal generator came off the systems at midnight on Thursday 9th April. The previous record was set in June last year. The record was made possible by a combination of high levels of solar generation and lower than usual demand. Solar set a new peak-generation record of 9.86GW on the 20th April, the previous peak being 9.55GW set in May 2019. This highlights the importance of renewables in increasing the countries future resilience.

THE FUTURE OF CCA – GOVERNMENT ANNOUNCES SCHEME EXTENSION IN SPRING BUDGET

The governments CCA (Climate Change Agreement) scheme has been extended from March 2023 to March 2025. The 2-year extension announced in the Spring Budget will give eligible companies extra financial support. Additionally, it is now allowing new businesses to join and gain access to savings as of January 2021. Under current rules, businesses have not been able to join the scheme since October 2018. Any businesses wanting further information on the CCA scheme and how they can benefit, please get in touch.

NEW SUPPORT SCHEMES FOR GREEN GAS AND RENEWABLE HEAT

On the 28th April, the Government announced it was starting a consultation on a Green Gas Support Scheme. The Government has pledged £9 billion of support over the next ten years, which is a welcome indication of on-going support for this important sector, after the Renewable Heat Incentive (RHI) closes to new applicants in March 2021 for the non-domestic sector. The details of the support for Green Gas is to be confirmed, after the closure of the consultation on the 7th July, but is likely to be funded through a Green Gas Levy, which will be applied to the gas supply chain. The consultation documents reveal that the scheme intends to support the continuing development of new biomethane-to-grid projects, after the closure of the RHI. Biomethane produced from the processing of food waste in anaerobic digestion facilities will be supported through a payment related to the amount of green gas injected into the mains gas grid, over a period of between 5 and 15 years. This is a shorter timeframe than the current non-domestic RHI scheme, which provides payments for 20 years, but will hopefully be sufficient to stimulate new project development.

Alongside the consultation on Green Gas, the Government announced that it intends to introduce a Clean Heat Grant, as well as an extension of the domestic RHI scheme to March 2022 (previously scheduled to close to new applicants in March 2021). The Clean Heat Grant will primarily focus on support for heat pumps, in the form of a £4,000 upfront capital grant. Biomass schemes will only be eligible in restricted circumstances. There will be a capacity limit of 45kW for grant supported technologies, so it will mainly be applicable to domestic and small scale non-domestic properties.

We expect the Green Gas Support Scheme announcement to revitalise what was a subdued new project pipeline in the biomethane-to-grid sector, as these complex projects will no longer need to be commissioned by March 2021 in order to receive support. The Carter Jonas Energy team has specialist experience of the development of anaerobic digestion/biomethane-to-grid projects, so please get in touch to discuss any project proposals you may have. For more information, please contact Greg Hilton, Partner in the Energy team at Carter Jonas.

THE UK ENERGY MARKET

Short-term UK energy markets remained bearish in April as prices hit new record lows. Day-ahead prices plunged to potentially its weakest ever weekday value of £8/MWh on April 20th which coincides unsurprisingly with the solar peak-generation record. Wind output was also strong throughout the month, which, combined with low industrial/business demand, helped push prices down further. Power price for May 2020 fell to £23.5/MWh, the lowest Month-ahead value in 13 years.
Further out, prices have been significantly more volatile, rebounding twice by as much as 11%. The gains were largely driven by fears over French nuclear output over the coming months as several maintenance outages have been extended or rolled forwards. The announcement of some lockdowns being lifted in several European countries also helped push prices up along with a rise in EUAs (Carbon Emission Allowances) which surged more than 24% since the start of April, despite predictions of a sharp fall in CO2 emissions this year. The price for oil in the US turned negative for the first time ever (as low as -$37.63/barrel) as traders paid to not take delivery in the face of full storage sites and low demand. However, this news only caused a short-term drop in UK energy prices, as the other factors dominated again to drive prices back up.

The outlook remains one of uncertainty as the UK looks set to feel the impact of Covid-19 for many months to come. Summer electricity demand is expected to fall by up to 20% from normal levels which, combined with continuing high renewable output, is likely to keep short-term prices low. Gas demand is also forecast to drop significantly with an excess of supply also expected, according to National Grid. Longer term prices look to be showing some signs of recovery, however market volatility remains and prices are still at low levels.

Any business interested in advice on how the current situation will impact their energy contract and/or PPA, please get in touch with Helen Melling, Energy Specialist at Carter Jonas.

In other news

Ofgem has delayed the end of Triad payments which will now take effect from April 2022 instead of April 2021. The move is welcomed by generators who get paid for supporting the grid during periods of high demand through the winter.
National Grid ESO have been given the power to cut embedded generation in emergency events as of 7th May. The emergency measure was approved by Ofgem last week due to concerns over a risk of disruption to security of supply during unprecedented low demand periods. There was concern that demand could be particularly low over the bank holiday, however, ESO has advised that the emergency measure was not required.
BEIS statistics showed that, in 2019, more than half of all generation came from low carbon sources – a record 54.2%. This is the third successive year that this has been reached. The statistics also showed that 36.9% of UK generation came from renewable sources in 2019, up from 33% in 2018. This has been attributed by growing renewable capacity and decreasing demand for electricity, linked to increasing efficiency.
Renewables developer GRIDSERVE has entered into a partnership with Hitachi Capital (UK). The partnership will see Hitachi invest heavily into the development of GRIDSERVE’s hybrid solar farms and EV charging Electric Forecourt. The fund will be used for a number of imminent projects including the first Electric Forecourt, which is set to open in Braintree, Essex in summer 2020.

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Helen Melling
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