Utility Week

Utility Week 11th October 2013

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Markets & Trading This week ENVIRONMENT High gas prices and rising import dependency make storage strategic, says commodities analyst Clashes over levels of UK emission cuts UK should 'look again' at gas storage subsidy The UK government should look again at supporting new gas storage if import dependency continues to rise. That was the view of Sabine Schels, head of fundamental commodity research at Bank of America Merrill Lynch, as she warned that prices were likely to remain high. Speaking at regulator Ofgem's winter outlook consultation seminar in London, Schels said: "If we continue to see LNG imports into the UK being so low, the government should perhaps Storage: the UK needs more reconsider its position." The Department of Energy and Climate Change (Decc) last month ruled out subsidies for gas storage, saying security of supply could be delivered more cheaply by the market. Centrica responded by writing off £240 million it had spent developing two storage projects. Gas stores across the Continent were lower than usual for the time of year, said Schels, and Europe increasingly depended on imports from Russia and Norway as LNG was drawn to high demand from Asia. She added: "Gas has traded in a high range for quite a while. In our view the downside is capped. Summer prices this year have been really surprisingly elevated." Her remarks followed reassurances from National Grid that the UK's diverse gas supplies would be "well in excess of maximum demand" this winter. MD Behind the headlines The EU Emission Trading System (EU ETS) is the "cornerstone" of the EU's drive to reduce emissions, and develop low-carbon energy sources. However, an excess of allowances has kept the carbon price low and meant that coal has remained economically viable. The UK still relies on coal-fired plants for around 40 per cent of its electricity. 26 | 11th - 17th October | UTILITY WEEK 2007: EU ETS established but the number of allowances is overestimated and the price falls to 0 The start MPs and climate change experts are preparing for a fight with the government ahead of the December review of the fourth carbon budget, which sets out how much the country can emit in 2023-27. Chancellor George Osborne is expected to argue for the target to be weakened because other European countries are moving slowly and the UK could be placed at an economic disadvantage. Lord Deben, chair of the Committee for Climate Change, wrote to energy secretary Ed Davey last week to warn that there was no justification for such a change. He wrote: "The assumptions regarding European Union circumstances upon which the fourth carbon budget decision was made have not changed, and therefore there is no legal or economic justification to change the budget in this respect at this time." Indeed, he said that if the EU adopted a tougher target of a 50 per cent emissions cut by 2030, as Davey had advocated, the fourth carbon budget would need to be tightened. His stance was supported by the Environmental Audit Committee, which said on Tuesday that climate science did not w arrant any loosening of targets. Committee chair Joan Walley MP said: "Some commentators are intent on spinning recent developments in climate science to suggest we can relax our efforts to cut carbon, in the mistaken belief that this would be better for our economy." Energy Price regulation would open market The big six energy suppliers should be forced to charge consistent prices based on the cost to serve per customer type, according to a small energy supplier. Stephen Fitzpatrick, managing director of Ovo Energy, was responding to a declaration by energy minister Michael Fallon that he would open up the m arket to greater competition. Fitzpatrick said large suppliers should be stopped from offering significant discounts to new customers or those who threatened to leave while charging higher prices to customers who did not shop around. He said: "The biggest issue is the huge inconsistency between energy prices from the big six. Tariffs for standard customers are very high, but they have very aggressively priced loss-leading to mop up customers that move based on price. That means it's almost impossible for new suppliers to operate in the market." July 2013: Backloading plans approved by the European Parliament by 344 votes to 311. The carbon price rises to €4.69/tonne. 2008-2012: number of allowances reduced by 6.5 per cent but economic downturn hits demand and leads to a surplus of carbon allowances. Carbon price remains low 2020: Greenhouse gas emissions from EU ETS sectors should be 21 per cent lower than in 2005 already 2013-2020: Third phase of trading 2021-2028: Fourth trading period 2005 20102015 2020 20252030

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