Energy Bulletin
Issue 5

After a quiet start to the month, short term UK power prices turned volatile following changeable weather conditions as wind generation swung from lows of 1GW to highs of 12GW. Short term UK gas prices also fluctuated as a mild start to the year was closely followed by a prolonged cold snap, helping to push demand to 40% above seasonal norms. However, the latter half of the month saw gas prices take a downward turn in light of plentiful supply and low demand levels, while mixed wind generation forecasts continued to support power prices.

Current weather forecasts suggest Europe is set to turn colder over the next few weeks with wind levels remaining below average for the time of year. This is likely to provide support to short-term UK energy prices, however, with gas storage sites in Europe at 70% capacity (9% higher than they were in Jan ’18), we are unlikely to see prices spikes similar to those witnessed in recent winters.

Longer term UK energy prices were largely driven by a slump in oil markets throughout most of December. Oil prices initially found support following the OPEC meeting in Vienna where 2019 oil production cuts were eventually agreed. However, the rise was short-lived as prices proceeded to crash from $80/barrel to $50/barrel on the back of fears of a global economic slowdown and rising US oil output. There are already signs that production cuts coming into place this month will provide some support back to oil markets, which will likely impact on long-term UK energy prices.

• The Government has confirmed that both the generation and the export tariff will close to new projects from 31st March 2019. An extended period will be provided for some pre-accredited projects (under 50kW) to reach full accreditation up to 31st March 2020

• Ofgem published new guidance on the co-location of electricity storage with renewable technologies. The guidance confirms that storage systems can be added without affecting the sites accreditation under Feed-in Tariff or RO. That being said, they also note that applications will be assessed individually and developers will bear the risk of refusal

• According to the Solar Trade Association, the cost of electricity from large-scale solar plants in the UK has fallen by much more than previously predicted, with the technology set to be competitive with gas-fired and onshore wind power this year. They suggest the cost will be £50- 60/MWh in 2019, down from a previous estimate of £80/MWh

• Construction of a 49MW battery – one of the largest in Europe – has now been completed on a former coal-fired power station site in Cumbria

This month’s graph shows the trends in agreed Power Purchase Agreement (PPA) rates signed since April 2018 through the Carter Jonas brokerage service. A PPA rate is dependent on a variety of factors including size and type of generator and the start date/ length of the contract. However, the graph highlights the general trend in headline rates (excluding Triads) against one of the key market drivers of 2018 - oil.

PPA prices steadily increased throughout most of 2018, peaking in September before dropping back down to levels witnessed over the early summer months. The rise was largely down to a combination of rising carbon, coal and oil markets which drove UK power prices upwards and subsequently pushed up export prices. As you can see from the graph, PPA prices tracked oil markets closely throughout the year.

The last quarter of December saw markets dip, largely driven by a significant slump in oil markets from over $80/barrel to lows of $50/barrel towards the latter part of December. However, a rise in carbon markets limited the losses.

It is worth noting that current PPA rates of between 6-7p/kWh are still highly competitive, particularly when comparing against the current Ofgem export tariff of 5.24p/kWh. The direction of oil markets is likely to be the key influencer over the coming months and whether or not OPEC can gain back control over production levels in light of record US crude production.

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