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Markets & Trading This week Balancing services could be worth £330 million to consumers in prevented power losses by 2016 Ofgem consults on grid balancing ideas New balancing services proposed by National Grid could be worth £330 million to consumers in prevented power losses by 2016, while adding about 75p a year to domestic bills and less than £7 a year to small businesses' power costs, according Grid: proposing two new balancing services to Ofgem. National Grid's proposals are for two new services: Demand Side Balancing Reserve (DSBR), which deploys demand-side capacity whereby users are paid to withdraw consumption; and Supplemental Balancing Reserve (SBR), which uses plant that might otherwise be withdrawn. Both services will be called upon ahead of emergency measures such as voltage reduction. National Grid would expect to use DSBR ahead of SBR. National Grid estimated the cost of SBR at £50 illion m a year and of DSBR at £25 million a year, but Ofgem warned that there might be a "large range around those figures" depending on the amount used, the tenders made and the uptake of DSBR, among other factors. Ofgem calculated customer benefits under various scenarios. Benefits ranged from zero where existing measures are adequate (contrary to Ofgem's projections) to £216 million in 2014/15, rising to £330 million a year in 2015/16 where conventional capacity is low. Ofgem and the Department of Energy and Climate Change called on National Grid to procure additional balancing services in the light of the regulator's annual Electricity Capacity Assessment for 2013, which showed the UK's ability to meet its demand for power was falling away faster than it expected. "Even over the short term, the uncertainties around both supply and demand are significant," Ofgem said. Ofgem has opened a consultation on the proposals, which runs until 6 December. TL Emissions EU policy leads to loss of London desks The European Union's "faltering" climate change policy is undermining the City of London's leading role in carbon trading, says a report by the Institute of Public Policy Research (IPPR). The collapse of the carbon price within the EU Emissions Trading System (EU ETS) and the following "instability" has been a "major contributing factor" to the closing or scaling back of London-based carbon trading desks at ten financial institutions. In 2012, London was home to 93.5 per cent of the global market in carbon exchanges, and the volume of contracts traded had increased 100 times since 2005. However, the report said the oversupply of permits during the second phase of the EU ETS has been an "albatross around the scheme's neck" and deterred investors, and the initial proposals to address the problem have failed, denting confidence in the EU's political commitment. Investment opportunities have been lost, and the crisis of confidence in the EU ETS has been a major contributory factor to the closing or scaling back of London-based carbon trading desks at ten financial institutions – including UBS, Deutsche Bank, Barclays, JP Morgan and Morgan Stanley. Other markets, such as Sydney and Singapore, are now being exploited for new opportunities in carbon trading, the report said. Gas Investment in storage needed to address 'failure' Conservative backbench leader Robert Buckland has called on the government to invest in gas storage, claiming the gas market was "failing Britain's needs". Buckland, joint secretary of the 1922 Committee, warned the market was not delivering the investment needed for gas storage to fulfil its "essential role" in the UK's energy security. Buckland said volatility in global markets meant "the market struggles to provide appropriate price signals" to bring on gas storage investment. "Given this uncertainty and the material cost implications for consumers, there is clearly a role for government to act in the best interests of consumers," he wrote on the website Conservative Home. He went on: "[Gas storage] is exactly the sort of long-lead infrastructure invest- 28 | 29th November - 5th December 2013 | UTILITY WEEK ment where some form of regulatory intervention will provide a clear benefit to consumers." According to Buckland, gas was expected to offset intermittency in renewables, fill the gap should adequate nuclear fail to materialise and to continue to fuel domestic heating at the same time as Britain's reserves were dwindling and the global demand for gas was increasing. One senior banker told IPPR: "Most activity is now in new markets – China, California, Australia, etc. Europe [is] very slow now. There is some residual demand for services related to the ETS, but there is far more in the new markets." Reforming the EU ETS is "crucial", said the report, because this would get the EU "back in front as the global leader" on low-carbon investment, while helping to secure the City of London's role as the "premier home" of carbon trading and finance. To achieve this, the IPPR said an "ambitious" carbon target of a 50 per cent reduction in emissions by 2030 is needed, while a Carbon Market Policy Committee should be created to oversee the supply of carbon allowances, which would also help "return confidence" to the market. Energy Liquidity measures move a step closer Measures to boost liquidity in the power market came a step closer last week as Ofgem issued a statutory consultation on licence changes. The regulator is pressing ahead with its "Secure and Promote" licence condition following months of fierce industry debate over what kind of intervention, if any, was called for. Ofgem confirmed proposals to place a market-making obligation on the large vertically integrated energy companies and help small suppliers access hedging products in the wholesale market. Four out of five respondents to the last round of consultation, in June, were "broadly supportive" of the proposals, Ofgem said. In response to feedback, Ofgem has tweaked the design to provide regular "windows" for trading. It also allows for a review of the licence condition if EU financial legislation were to "significantly impair" the ability of the big six to comply with the market-making obligation. The new licence condition is set to kick in on 31 March 2014, subject to consultation.