Utility Week

UTILITY WEEK | 23RD - 29TH NOVEMBER 2018 | 7 News "We'd be building businesses. We'd be having all different sorts of opportunities to grow the economy. This is the economic development opportunity of the century. "We've got so much potential in this field… It's so frustrating to watch." News of the ruling overshadowed Greg Clark's speech to the Institute of Directors later that day, which in most other weeks would have garnered a great deal more attention. Clark declared the end of the energy tri- lemma and made a ra of policy announce- ments, including a new white paper and a full review of industry codes and governance. He briefly interrupted the main thrust of his speech to comment on the decision, tell- ing his audience: "The judgement, as every- one knows that's read it, is on a procedural matter – the commission's process for grant- ing state aid approval – rather than on the policy on capacity markets per se." According to National Grid, the govern- ment is planning to seek state aid approval for a "one-off " T-1 auction at some point in 2019 and then obtain reauthorisation for the main scheme to allow for a T-3 auction the following year. But if Clark is hoping to resolve the issue without making changes to the capacity market, Bell believes he will be sorely disap- pointed: "There is zero chance of getting the same capacity market again," she predicts. Winners and losers Unsurprisingly, many in the wider energy industry were unhappy with the decision. Around a billion pounds of capacity market payments for 2018/19 is in jeopardy. It's unclear for the time being whether these payments will be lost forever. But even if the capacity market is reinstated and the payments are made further down the line, many contract holders face a big hole in their finances over the intervening period. Tom Glover, chief commercial officer at RWE Supply and Trading, told the Guardian he was "deeply disappointed" with the rul- ing and his company was facing a "signifi- cant negative hit" to its earnings. "Given the serious financial implications for capacity providers, as well as the need for investor certainty and security of sup- ply, this issue needs to be resolved as soon as possible," said Energy UK chief executive Lawrence Slade. Tempus Energy doesn't have any capacity contracts and so does not lose any income. However, Bell claims to have strong support from fellow aggregators. Flexitricity has been one of the big- T-4 auction for 2018/19 (MW) CCGT 20,603 CHP and Autogeneration 4,184 Coal and biomass 9,232 Demand-side response 171 Hydro 682 Nuclear 7,876 OCGT and reciprocating engines 2,066 Oil-fired steam generators 15 Storage 2,699 Total 47,528 T-1 auction for 2018/19 (MW) CCGT 2,215 CHP and Autogeneration 673 Coal and biomass 632 Demand-side response 443 Hydro 0 Nuclear 0 OCGT and reciprocating engines 1,723 Oil-fired steam generators 7 Storage 104 Total 5,797 Total for 2018/19 (MW) CCGT 22,818 CHP and Autogeneration 4,857 Coal and biomass 9,864 Demand-side response 614 Hydro 682 Nuclear 7,876 OCGT and reciprocating engines 3,789 Oil-fired steam generators 22 Storage 2,803 Total 53,325 T-4 for 2019/209 (MW) CCGT 21,809 CHP and Autogeneration 4,206 Coal and biomass 4,684 Demand-side response 476 Hydro 695 Nuclear 7,575 OCGT and reciprocating engines 2,430 Oil-fired steam generators 2,617 Storage 1,862 Total 46,354 CONTRACTS AWARDED TO DATE (MW) Source: National Grid Storage Oil-red steam OCGT and Nuclear Hydro Demand-side Coal and CHP and CCGT T-4 auction (MW) 0 10,000 20,000 30,000 40,000 50,000 60,000 2017 2018 2019 2020 2021 2022 2023 2024 2025 2026 2027 2028 2029 2030 2031 2032 2033 2034 Delivery year Volume of capacity procured in the T-4 18/19 Auc�on Volume of capacity procured in the T-4 19/20 Auc�on Volume of capacity procured in the T-4 20/21 Auc�on Volume of capacity procured in the EA & TA 17/18 Auc�on Volume of capacity procured in the T1 18/19 Auc�on - Storage Oil-red steam generators OCGT and reciprocating engines Nuclear Hydro Demand-side response Coal and biomass CHP and Autogeneration CCGT T-4 auction (MW) Storage Oil-red steam OCGT and Nuclear Hydro Demand-side Coal and CHP and CCGT T-4 auction (MW) Storage Oil-red steam generators OCGT and reciprocating engines Nuclear Hydro Demand-side response Coal and biomass CHP and Autogeneration CCGT T-4 auction (MW) PROJECTED IMPACT ON UTILITIES' EARNINGS PER SHARE FOR 2019 Source: Jefferies -0% -5% -10% -15% -20% -25% -3% Centrica SSE EDF Drax Uniper RWE -20% -14% 0% Gross impact Net impact -18% -16% -7% -3% -8% -6% -15% -15% continued overleaf All figures quoted are for de-rated capacity and rounded to the nearest megawatt

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