• Capacity Market investigation launched. The European Commission (EC) has launched an investigation into the UK’s Capacity Market following November’s court ruling that led to its suspension. The industry has welcomed the move as a positive step towards reinstating state aid approval as £1billion of payments are still on hold.
  • Record February temperatures drive energy prices down. The warmest winter day ever recorded in the UK occurred in February as temperatures rose above 20°C. The unseasonably mild weather pushed down UK gas and power prices on the back of reduced demand and comfortable supply systems. The PPA market also stalled as a result, however, prices have started to tick back up and could rise further particularly if the UK witnesses another cold snap.
  • Energy giant Shell announces new acquisition. Shell announced it has agreed to acquire UK energy technology company Limejump. Carter Jonas will be in touch with all clients who may potentially be impacted by this acquisition which is due to be completed later this year.

Industry News

Short-term UK energy markets came under pressure throughout February, driven down by unseasonably warm temperatures; a sharp contrast to January’s freezing conditions. Fluctuating wind generation, from 1GW on the 4th to 11GW on the 11th, caused short term power prices to swing.

Longer term prices, on the other hand, were pulled between a rallying oil market and falls in gas, carbon and coal prices. Oil prices ended the month over $3/barrel higher at just over $66/barrel. The oil rally came as a result of deepening OPEC cuts from Saudi and Venezuela and falling US oil inventories which coincided with fresh optimism regarding the US-China trade deal. 

The pound strengthened in February following expectations of a soft Brexit, which aided the drop in UK power and gas prices as this reduces energy import costs. Brexit is likely to be a key driver this month as the 29th March looms.

Towards the end of February, forecasts of cooler weather conditions provided some support back to UK energy prices along with strengthening gas and carbon markets. March will be interesting as markets may start to relax further as long as the country doesn’t witness a repeat of last years “Beast from the East” which resulted in record gas and electricity price spikes.

  • Drax power station has become the first wood-burning plant in the world to capture CO2 emissions. If successful, the pilot project could be scaled up and enable the plant to become the world’s first negative emissions power station.
  • The UK’s six Distribution Network Operators (DNO’s) have committed to cut the red tape surrounding EV charger installations. The reforms should make it easier for operators to install charge points by streamlining the process and reducing the paperwork associated with applying for grid connections.
  • There is growing concern over planned reforms to network charging which, if enacted, would have a significant impact on the potential role of renewables and flexible energy services in the UK. The consultation on the Targeted Charging Review (TCR) closed in February and Ofgem is to now analyse the responses.
  • The Microgeneration Certification Scheme (MCS) has announced a new pilot scheme to include battery storage systems. It is hoped that the scheme, which is set to launch in summer 2019, will better equip the industry to roll out energy storage installations while ensuring consumer protection.
  • The government has extended the window of its proposed T-1 top-up auction until the end of August “as a contingency measure”. This comes after the original T-1 auction in January was abandoned following the suspension of the Capacity Market mechanism last year. The aim of the auction is to procure the capacity require to meet peak demand through a series of competitive auctions help one-year in advance.

The UK is set to leave the EU on March 29th and the government is yet to reach an agreement to replace the rules and regulations that govern vital trade between Britain and the rest of the world. A no-deal is becoming increasingly likely but what will this mean for the country’s energy industry?

Connected after BrexitAfter Brexit, our country’s energy systems will be decoupled from the European Internal Energy Market (IEM). While this won’t mean the lights go out, (as gas and power flow will likely continue) trading could become less efficient and longer-term supply less certain. This would increase costs for consumers especially in times of extreme weather or supply disruptions.

A short-term positive is that Brexit is set to occur after the end of the winter period which is most associated with peak energy demand. This should limit any short terms risks associated with interrupted power flows from Europe. However, it is widely anticipated that the cost of energy imports will rise if we see a fall in sterling, but by how much and when is still a big unknown.

There are currently five interconnectors linking the UK electricity system to mainland Europe. The EU doesn’t currently charge import duties on electricity but if the UK exits the EU without a deal it would default to the World Trade Organisation rules for energy imports and exports. Whether tariffs will then be introduced is uncertain, however, the majority of industry experts expect not. There are a further 10 interconnector projects between the UK and Europe currently in planning which could be delayed depending on whether or not a deal is agreed.

As just these few points suggest, there is a lot of uncertainty for the UK energy industry as Brexit looms but was is clear is that the UK shouldn’t face any supply restrictions in the short term. UK energy prices have been relatively stable in the run up but we will just have to see if that remains the case over the next few weeks.

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.

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 think your site may be suitable as securing grid capacity early on is key.

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 and businesses should act now to secure rental agreements and grid connections. Smaller schemes may also still be viable after the closure of the FiT scheme this month providing there is high on-site electricity usage, as the generation can be used to offset forecasted electricity price rises.

Battery Storage – 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.

Agency & Investment Opportunities – 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.  

@ 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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