• The most significant industry news this month was the suspension of the UK’s Capacity Market mechanism following a ruling by the European Court of Justice, which now prevents the government from holding future auctions and making payments under existing agreements. The UK government has said the ruling would not impact security of supply this winter and that it will work quickly to secure state aid approval
  • Oil prices continued to tumble throughout November despite Iranian export sanctions coming into place, as Russia and Saudi Arabia have increased production to soften the impact. This, along with global oil oversupply concerns, helped pressure long term UK energy prices downwards
  • Long-range weather forecasts indicate that Northwest Europe may undergo mild and close to seasonal average temperatures in the next couple of months with severe cold outbreaks unlikely due to forecasted warm temperatures in the Arctic. This could help keep UK energy prices relatively stable, particularly when combined with a healthy supply outlook
  • Any businesses with gas or electricity contracts in need of renewing should be looking to renew now. The Carter Jonas brokerage service enables a full tender process involving all the main UK energy suppliers to achieve the most competitive rates possible

Industry News

The first blast of winter weather across Europe provided support to UK annual gas and power prices during the first half of the month.  A series of outages in Norwegian gas fields pushed short term gas prices upwards, while electricity prices found support from low wind generation and high interconnector exports, driven by souring continental prices. These factors filtered through to tighten the UK energy system.  Meanwhile, long-term energy markets rose as much as 8%, taking direction from a rebound in carbon allowance prices following a new wave of buying from industrial companies and speculators.

The middle of the month witnessed a shift in price direction for both gas and electricity. Attention turned to oil markets as concerns over global oversupply and low demand dominated, resulting in a price plunge of 22%.  This, combined with softening carbon prices, drove long-term UK energy markets back down, however, a volatile pound following political upheaval over the draft Brexit deal added some extra choppiness into price movements.  Short-term UK energy prices also fell back down towards the end of the month as demand dropped and wind generation picked up to over 11GW, resulting in a more comfortable system.

  • Britain’s renewable energy industry has hit a major milestone after the total renewables capacity overtook fossil fuels for the first time. The country’s renewables capacity has risen to 42GW, passing the 40.6GW combined capacity of coal, oil and gas-fired power stations. Renewable capacity has tripled over the past five years with significant growth in solar farms and offshore wind farms being connected to the grid
  • The draft Brexit agreement, which states that the UK will remain part of the Internal Energy Market after next March, has been welcomed by Energy UK (the gas and power industry association) which said it avoided “the cliff-edge scenario which would be so damaging for the energy sector”
  • Energy Minister, Claire Penny, signalled a possible U-turn over support for small scale renewables in a recent statement to Parliament. The plans to end both the export and generation tariffs in March 2019 has been met with significant controversy since it was announced, however, Perry indicated that an alternative solution will be announced shortly
  • Ofgem has approved funding for industry-led EV grid tests through the Optimise Prime project which aims to assess how low carbon cars will interact with and affect the UK’s power grid. The trial will see up to 3,000 EVs owned by Centrica, Uber and a large UK delivery firm take to the road to collect driving and charging data

Following the suspension of the UK’s Capacity Market in November, this section looks at the mechanisms history in more detail and the uncertainty surrounding its future.

The Capacity Market is a mechanism introduced by the government to ensure that electricity supply continues to meet demand during periods of stress on the grid network, with the main objective of achieving long-term security of supply. The annual reverse auction results in a clearing price per MW rate for generators based on the capacity they can offer to the market and needs to be available at any time when called upon by National Grid.

The most recent T-4 auction in February 2018 for delivery over 2021-22 saw a record low clearing price of £8.40 per kW (see graph) which was well below expectations and previous auctions – the 2017 auction cleared at £22.50. The low price is good news in the short term for energy bill payers but has prompted fears that the mechanism is becoming redundant for encouraging new generation capacity and driving the transition to a low carbon, flexible grid. Its future becomes even more uncertain when factoring in the recent suspension by the European Court of Justice which puts future auctions on hold and halts payment under existing agreements. However, the UK government has stated it will be working to reinstate the Capacity Market as soon as possible and that the ruling poses no issues for the country’s security of supply this winter.

Electric Vehicle Charging Points – The number of electric vehicles entering the UK market is forecast to soar over the next decade and we need to ensure the infrastructure is in place to cope with the demand. Carter Jonas are working with developers and investors - targeting sites along the major road networks and areas with large footfall and dwell time.  Contact us now if you would like to discuss whether your site would be suitable

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 risk 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

Solar PV – We are seeing an increase in approaches for large-scale subsidy free solar schemes following a decline in the cost of PV panels. With the market picking up, landowners or businesses should act now to secure rental agreements and grid connections. With the Feed-in Tariff due to close at the end of March 2019, there is an additional incentive for small scale projects to progress quickly, however these schemes may still be viable after the closure providing there is high on-site electricity usage, as the generation can be used to offset electricity price rises

Battery Storage Opportunities – The market for behind the meter battery storage and Demand Side Response (DSR) is evolving quickly. The 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 industries with an annual electricity spend of higher than £100,000

@ Helen Melling
Helen Melling
Senior Energy Specialist
0113 426 9868 email me about Helen

Helen is a Senior Energy Specialist based in our Leeds office.

I can provide advice on:

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