A BUSY MONTH OF EXPORT CONTRACTING FOR OUR BROKERAGE TEAM 

Cold temperatures and supply concerns over the first half of February helped push UK power prices upwards to a Winter high. The team took advantage of the price spikes to lock in 17 upcoming Power Purchase Agreements (PPAs) which equated to over 12GWh of exported power. The renewal rates achieved were over 20% higher than current rates which means a significant increase in income for our generators over the next year. Power markets remain relatively strong so please get in touch if your export contract is coming up for renewal.

SPRING BUDGET ANNOUNCEMENTS MIXED FOR THE ENERGY SECTOR

Chancellor Rishi Sunak delivered the Spring Budget this week which included details of a new UK infrastructure Bank and a freeze on the Carbon Price Support (CPS). The government is to launch a £68 million UK-wide competition to implement innovative energy storage prototypes including longer duration systems which is a boost for the battery sector. Commitments to solar were notably missing from the Budget while calls for a reduction in VAT on renewable energy products such as solar and storage have so far been ignored.

WIND GENERATION HITS NEW RECORD IN FEBRUARY DURING STORM DARCY 

Generation from the UK’s onshore and offshore wind farms peaked at 17.5GW according to National Grid ESO, beating the previous peak of 17.3GW back in December 2020. These records highlight the changing nature of Great Britain’s electricity mix with reduced reliance on fossil fuels. The government provided further support to the wind sector in the Spring Budget with the announcement of a £20 million programme to support the development of floating offshore wind technology.

NEXT WEEK OUR ENERGY TEAM WILL BE SPEAKING AT THE LOW CARBON AGRICULTURAL SHOW 

Come join us for two virtual talks, one on advising landowners on large scale solar opportunities and one on energy asset valuations. For more information and to sign up please follow this link.


THE ENERGY WHITE PAPER – A ‘ROADMAP’ TOWARDS NET ZERO BUT LACKING IN SPECIFIC DETAIL 

On 14 December, the much-anticipated Energy White Paper was published. This 170-page document intended to expand upon the Prime Minister’s Ten Point Plan for a Green Industrial Revolution by providing a roadmap of support for the industry – the destination being net-zero carbon emissions by 2050. Whilst the six chapters of this White Paper provide a promising level of enthusiasm, we sense a lack of substantive policy commitments and indecisiveness as to how certain net-zero objectives will be met.

This is especially true in clarifying the future of the natural gas network - specifically how it will be repurposed in this colossal green energy transition. Considering that the UK’s National Transmission System (NTS) was one of the most expansive infrastructure investments made by the UK, it would be reasonable to expect that the repurposing and decarbonising the gas network would be of utmost priority. However, aside from mentioning the Green Gas Support Scheme, the White Paper has skirted around this issue. 

The Green Gas Support Scheme (GGSS) is proposed by the Government to increase the proportion of green gas in the grid through support for biomethane injection. Biomethane is known as a “renewable gas”, produced through the anaerobic digestion of organic matter. It is chemically identical to methane, and therefore can be supplied directly to the NTS. Whilst burning biomethane produces carbon emissions, the process of producing this gas replaces the need for non-renewable fossil fuels and avoids substantial greenhouse gas emissions in agriculture and farming.

This scheme is intended to replace the non-domestic Renewable Heat Incentive (RHI) programme, which provided broad financial support to renewable heat systems, and allows for the injection of biomethane into the grid. Biomethane injection is seen a very important step in substituting non-renewable, fossil fuel intensive natural gas, and so the policy support given to the GGSS in this White Paper is definitely a step in the right direction.

But while the statements supporting the rollout of the GGSS provide a pathway for the industry to decarbonise substantially, the GGSS seems to be the only decisive policy that the Government has taken regarding the future of gas infrastructure. Further commitments surrounding the gas network are somewhat vague, such as the call to consult on updates to the Gas Act. The Government is said to be reviewing the overarching regulatory framework set out in the Gas Act 1995 to ensure the appropriate powers and responsibilities are in place to facilitate a decarbonised gas future, but this statement fails to clarify what this could mean: a change in the regulatory framework could mean anything from repurposing the gas infrastructure to carry renewable fuels or scaling back its capacity.

Furthermore, the White Paper fails to address the longstanding dilemma of whether new homes will continue to be connected to the gas network in favour of zero-carbon alternative heating systems. 

The potential future use of hydrogen takes important step forwards in the White Paper, positioned as an emerging technology which could help decarbonise the gas grid, there are various ways in which hydrogen could contribute to decarbonisation. Discussions with our clients support our belief that hydrogen is on the cusp of becoming a viable part of the UK’s energy sector. In many ways, hydrogen is a very flexible ‘energy carrier’ as it can utilise electricity from intermittent sources (wind and solar) which is otherwise surplus to requirements.  It is also a means of reducing the carbon impact of gas fired appliances when added to methane within the mains gas grid and can be used as a zero-carbon transport fuel. We see the publicity and enthusiasm within the White Paper as a good sign, but this needs to be supported by solid governmental support and there is little indication of how hydrogen will deliver on its potential. So, we look forward to the publication of a Hydrogen Strategy, which is trailed in the White Paper.

The policy document provides further indications as to the direction in which the Government wishes to take to decarbonise the UK gas grid. The case is made for the further support and we welcome specific commitments, such as the Green Gas Levy. History, however, tells us that these timescales are prone to slippage, in current times more than ever. In the meantime, costs are being borne by existing and prospective developers. What the industry needs to make these opportunities a reality, is firm policy support from Government.

That said, it is refreshing to see the development of potentially viable alternative narratives to the current ‘everything must be electric’ mantra. A greener, lower carbon gas grid, along with the huge potential of hydrogen can enable one of its biggest infrastructure investments of the twentieth century to be repurposed for the 21st century.

If you would like to discuss any of the topics of this article in more detail, please contact Greg Hilton 07342 704562 or Greg.Hilton@carterjonas.co.uk.   

THE UK ENERGY MARKET

Storm Darcy brought Arctic conditions to the UK in the first week of February which pushed day-ahead prices up from £56/MWh to £81/MWh due to a combination of supply concerns, continued cold weather forecasts and low renewable output. However, by the middle of February,

Day-ahead and Month-ahead power prices had plummeted to their lowest values since November on the back of high wind generation, falling gas prices and milder temperature forecasts. 

The bearish run was relatively short-lived as prices recovered at the end of February and into the start of March, supported by a significant drop in wind output, cold weather forecast and outages at several power stations leading to supply concerns. However, price gains were tempered by an improved gas supply outlook for the UK going into the summer.

The spikes in short terms prices at the start of February filtered through to provide support to the gas and power curve with annual prices climbing as much as 8%. Prices were bolstered further by significant gains in the price of carbon emission allowances, which hit record highs along with a strong rally in oil prices of over $10 per barrel. This rally pushed oil prices to their highest level since December 2019 at $67 per barrel and was largely down to a combination of oil production concerns in the US and global economic optimism amid global vaccine rollouts. 

The latter half of February saw curve prices drop slightly as oil prices came off from the highs and pressure from short terms price spikes reduced. April 2021 price ended the month around £54.75/MWh, down 2% on mid-February levels.

We expect curve prices will continue to be heavily influenced by oil and carbon market movements along with everchanging optimism surrounding the speed at which global economies will recover post Covid-19.

Any businesses interested in advice on how current markets will impact their energy contract and/or Power Purchase Agreement (PPA) should get in touch with Helen Melling, Senior Energy Specialist at Carter Jonas on 07467 335587 or helen.melling@carterjonas.co.uk.

In other news

A total of £1.5bn was originally set aside to help homeowners in England make their homes more energy efficient, with a further £500m intended for use by local authorities. However, it seems that 95% of this pot remains unspent due to administrative delays.  Business minister Anne-Marie Trevelyan has revealed that unspent sums from the £2bn total will not be rolled over into the next financial year and, instead, the government will provide £320m of funding for the scheme, effectively withdrawing hundreds of millions of pounds from the programme. This is a real blow for both consumers and installers in the energy industry and contradicts the governments net-zero targets.
In the Annual Market Monitoring Report 2021, published in February, the NIC argued that the government should also ensure that future price controls facilitate the necessary investment in the electricity grid. 
They have so far been largely missing from government documents such as the 10 Point Plan, the Energy White Paper and now also the Spring Budget. The organisations are recommending the development of a solar sector skills, financing and training deal to support the suggested deployment of at least 40GW by 2030. This would put solar in line with government support for other renewable technologies such as offshore wind.
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Energy Valuations - Carter Jonas has valued £175m of energy and utility assets over the last 12 months. The team provides professional valuation and due diligence advice to clients such as developers, banks, private asset owners and operators of assets including solar farms, wind turbine, AD plants and battery storage sites.

Electric Vehicle Charging Points – The installation of EV charging points is a great way to futureproof 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. Find out more here.

Solar PV – Carter Jonas is actively site finding and advising clients on the development of over 64 sites that will enable the development of circa 3.8GW 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 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 by 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 £75m 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.

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@ Helen Melling
Helen Melling
Senior Energy Specialist
0113 426 9868 email me about Helen
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Helen is a Senior Energy Specialist based in our Leeds office.

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