Utility Week

UTILITY Week 13th June 2014

Utility Week - authoritative, impartial and essential reading for senior people within utilities, regulators and government

Issue link: https://fhpublishing.uberflip.com/i/327828

Contents of this Issue


Page 28 of 32

28 | 13th - 19th June 2014 | utILItY WeeK Markets & Trading This week Big six must 'explain why bills aren't falling' Ofgem says suppliers must account for why retail prices are not falling with wholesale costs Ofgem has urged the big six to explain to customers what impact falling wholesale costs will have on their energy prices. The regulator raised the pres- sure on major energy suppliers to justify not cutting retail prices, in a letter sent on Tuesday. Gas and electricity wholesale prices for next day delivery are at four-year lows, Ofgem said, driven down by low demand on mild weather last winter. The gas price is 38 per cent lower than this time last year and electricity 23 per cent lower. Forward prices for next winter are also down, 16 per cent and 9 per cent respectively. However, Citi analysts said the big six were unlikely to make changes to retail tariffs soon due to weak finan- cial results over the first quarter and forward hedging positions. Utilities are understood to buy gas and power on the open market around two years ahead in order to hedge against market risk. But because 2013 saw pricing levels sustained at strongly elevated levels following a long, cold winter, the recent price slump may not have taken full effect on the market position of utilities. Dermot Nolan, chief executive of Ofgem, encouraged customers who were unhappy with energy companies' explanations to "vote with their feet" and try independ- ent suppliers. He said: "Suppliers need to take the initiative and explain clearly what impact falling wholesale energy costs will have on their pricing policies." eLectrIcItY Grid looks to expand interruptibles National Grid is offering contracts to energy users and generators to act as electricity system "balancing tools" ahead of a looming capacity crunch expected in coming winters. The transmission system operator said on Tuesday it was seeking large energy users and generators to sign up to contracts committing them to reduce demand or to boost output by as much as 1,800MW, depending on the needs of the electricity system. National Grid already offers such contracts but more are needed to manage shrinking capacity margins which are partly due to plant closures and have upped the risk of blackouts by the winter of 2015/16. energY European rules are hurting trading Europe's major energy com- modity traders expect lower market participation as a result of tighter European regulation, which is expensive and difficult to implement. According to a survey by PA Consulting, more than 90 per cent of energy commodity trad- ers expect liquidity to fall as a result of the European Market Infrastructure Regulation (Emir), which was implemented in 2013. Specifically, 80 per cent of respondents blamed a lack of clarity and guidance from the European Securities and Markets Authority on how to meet the requirements. "Despite being in force for more than a year, the energy market still lacks the informa- tion and advice it needs to comply with all parts of the regulation," the report said. "Companies are struggling to adequately respond to Emir conditions and as a conse- quence many have not been able to achieve the new reporting obligations by February 2014," it said. emIssIOns UK 'writes off ' unused CO2 permits Ministers have written off 36 million tonnes of unused green- house gas emissions rights, it emerged last week. The UK underspent its 2008-12 carbon budget by the equivalent of more than a year's worth of emissions from Drax and Eggborough, the two largest coal power stations in the coun- try. This was helped by reduced energy demand in the wake of the recession. On the advice of the Climate Change Committee, the govern- ment has allowed the spare emissions rights to expire rather than bank them for future use. Consumer suspicions must be allayed Tricks of the trade Jillian Ambrose "Traders are facing the weak- est prices in half a decade" It's official: energy markets really are as fickle as the weather. This time last year, aer a bleak and very long winter, the UK's gas and power markets were on the brink of some of the most expensive summertime trad- ing levels seen since the global recession. But just as suddenly traders are now faced with some of the weakest market prices in almost half a decade due to the most recent mild (though very wet) winter season. The only thing shiing I'd be first in line to say that retail prices should fairly reflect market conditions. But that's the point: if last year you argued against a retail price which could rise as wholesale prices do, then how could you demand that it keep pace with weaker markets this year? Energy companies, appar- ently, are expected to shoulder market fluctuations indefinitely – unless those fluctuations suit us, as consumers. Then we're all pro-market. quicker than market sentiment is the public's idea of how it should affect them. It wasn't so long ago that consumers, press and politi- cians alike welcomed the idea of a price freeze on retail bills, shrugging off energy company concerns that such an interven- tion would leave them no room to manage unexpected market volatility. Consumer groups laughed off the idea that a price freeze could hurt the big six saying "But they hedge two years in advance!". Now, aer just two months of historically low prices the same groups are baying for retail price cuts.

Articles in this issue

Archives of this issue

view archives of Utility Week - UTILITY Week 13th June 2014