Utility Week

Utility Week 22nd November 2013

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Markets & Trading This week IEA predicts energy-intensive industries will suffer 10pc fall in their international market share Uncompetitive prices will cut market share The UK's energy-intensive industries face a 10 per cent slide in their market share under a 20-year burden of uncompetitive prices caused by low US gas prices, according to the International Energy Agency (IEA). In its latest World Energy OutShale: USA reaping benefits in global markets look annual report, the IEA said the USA was set to become self-sufficient in energy by 2035, largely through its shale gas reserves, and was currently reaping the benefits of shale gas in global markets. "Lower energy prices in the United States mean that it is well placed to reap an economic advantage, while higher costs for energy-intensive industries in Europe and Japan are set to be a heavy burden," said IEA chief economist Fatih Birol. Birol added: "There is a substantial gap between the US and Europe in gas and electricity prices. This is a serious problem for Europe because this differential in prices will remain for at least the next 20 years." He predicted that energy-intensive industries in the UK and Europe would suffer a 10 per cent fall in their international market share. The IEA reported that natural gas in the USA currently trades at one-third of import prices to Europe and one-fifth of those to Japan. And average Japanese or European industrial consumers are paying more than twice as much for power as their US counterparts. In its outlook to 2035, it forecasts nearly half of global power production growth will be in renewables, with the volume growth in China greater than in the European Union, the USA and Japan combined. TL Energy able power at an estimated £107/ MWh – a similar price to coal-tobiomass conversions. Icelandic MPs are dragging their feet on a proposed interconnector with the UK over concerns it could push up Iceland's power prices. The parliament in Reykjavik voted to push the matter to a committee, which will hear evidence from national power company Landsvirkjun in the coming weeks. Recently appointed industry minister Ragnheiour Arnadottir said Iceland needed to address the political implications of the project before entering negotiations with the UK. It is feared exposure to the UK market would push up the historically low power prices enjoyed in Iceland. A group of industry, consumer and environmental representatives has already offered tentative support for the 700-1,200MW undersea cable after scrutinising the proposals earlier this year, in recognition of the potential economic and climate change benefits. Bjorgvin Sigurdsson, executive vice president at Landsvirkjun, admitted the discussions in parliament "were not overly positive", but said "we are winning people over". Subject to political backing, the 'Icelink' could commission by the early 2020s and provide the UK with 100 per cent renew- Electricity Iceland wary about UK interconnector Customers want Elexon to be more transparent Electricity balancing and settlement company Elexon has lost trust due to "a lack of openness and perceived self-interest", according to the company's own appraisal of its latest customer service survey. Elexon's customer poll found that three out of four sets of respondents grouped by the seniority of their role were satisfied with the company's performance, but the most senior group – "strategic experts" – said it needed to cease "pursuing its own agenda" and "increase openness and proactivity". Elexon said in a statement: "Customers in more strategic roles are not as content as their more operational counterparts in terms of how Elexon has conducted itself recently." It added: "Trust has been undermined by a lack of openness and perceived self-interest. Strategic experts are not convinced Elexon has been acting in the best interests of the industry or their organisation in the past year." It said the comments were "particularly driven" by its bid to be the smart metering DCC. Open market Professor Andreas Stephan If significantly more households switched, energy firms would have a greater incentive to break ranks and compete. The main barriers to switching are: complicated billing, making comparison difficult; the time and trouble of switching; the perception that the cheaper energy company will soon increase prices to at least the level of the existing provider, making switching pointless; and inertia among consumers, despite significant anger at price rises. Ofgem has introduced new "If energy pricing were more like car insurance, it would boost switching" rules to make energy pricing simpler, clearer and fairer. In addition, the government has announced plans to reduce the time it takes to switch supplier to 24 hours. But these measures only address two of the barriers. The other two may be addressed by making energy pricing more like car nsurance. i 28 | 22nd - 28th November 2013 | UTILITY WEEK The fixed-term nature of car insurance provides a check point at which consumers are far more likely to consider their options and act to save money. Consumers with annual contracts switch far more frequently than those on unlimited contracts. Consumer searching and switching in the energy market could be improved by introducing: annual energy contracts with a fixed, transparent tariff; an annual statement clearly detailing the tariff charged, the household's total consumption, and the total spent on energy over that period; and a renewal quote offering a fixed tariff for the next 12 months, calculating the total household expenditure based on the previous year's consumption. Dr Andreas Stephan, professor of competition law, University of East Anglia

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