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UTILITY Week 18th July 2014

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28 | 18th - 24th July 2014 | utIlIty WEEK Markets & Trading This week Suppliers are using 'inside information' Ofgem says the big vertically integrated energy firms must do more to establish transparency Ofgem has warned utilities that greater transparency of inside information is needed to prevent potential market abuse. Utilities are required to publish market information in an "effective and timely" manner so that a supplier cannot profit from information about its own generation capacity before the rest of the market is notified. For example, if a company's generation capacity falls aer an outage it needs to make this information known before it goes to the market to buy the shortfall. Without disclosing this information, the company could benefit from an unfair advantage by securing volumes at a lower price before the market realises it is under-supplied. The regulator said it was not satisfied with how the regulation was currently being implemented. "We consider that, in general, the handling, use and disclosure of inside information needs to improve. We have found large variations in the quality, consistency and timeliness of inside information publications," Ofgem said in a statement. Ofgem has noticed significant differences in how energy companies publish market information online, and has offered a template for companies to use to standardise the approach. In addition, it said it had noticed significant delay between when a market incident took place and when it was reported. Ofgem said information should be published as soon as possible, but at the latest within one hour. JA Gas UK may import 90% of its gas by 2035 The UK could be reliant on imports for more than 90 per cent of its gas by 2035, according to new future energy scenarios created by National Grid. The 2014 Future Energy Scenarios published by National Grid includes two new models, No Progression and Low Carbon Life, alongside the Green Growth and Slow Progression scenarios from last year. The No Progression scenario sees the UK relying more on gas imports and gas generation because of a slow economic recovery and more "political volatility" as a result of the financial constraints. This would mean less money being invested in sustainable generation or domestic gas sup- plies, and a higher reliance on imported gas. Gas demand in 2035 under this scenario would be 855TWh, up from 835TWh in 2013, because government policy would be focused on short-term affordability. The other new scenario, Low Carbon Life, envisages more money being available because of high economic growth but "short-term volatility" in energy policy, which would result in no new renewable or carbon targets being set. Under this scenario, gas demand increases to 864TWh, but gas imports fall to 30 per cent by 2035 because the finance is available to invest in shale gas, which is predicted in this model to meet 35 per cent of gas demand. This is a "high affordability and low sustainability model" whereby the renewable target is missed, but there is a "consen- sus on decarbonisation". ElEctrIcIty Coal generation will be half the price of gas this winter The cost of generating electric- ity from coal this winter will be almost half that of using gas, prompting renewed calls from the coal lobby to allow con- tinued use of coal in the UK's generation mix. A report from CoalImp has called on the government to include the use of cleaner, effi- cient coal plants, saying it would make power more affordable and reduce political and market risk because the generation mix would be more diverse. The report said this winter the cost of generating power from gas would be more than £40/MWh while the cost of gen- erating power from coal would be £20/MWh. The price on the wholesale market is currently around £46.50/MWh for delivery this winter, a trader confirmed. We got the power: unfair advantage Tricks of the trade Jillian Ambrose "Firms can game the system – with a rubbish website" Finding comfort in consistency is definitely more difficult when it comes to utilities' apparent aversion to transparency. But at least we know what to expect. Apparently obfuscation doesn't start or end with confusing con- sumer tariffs and opaque profit reporting. On every possible count, energy companies seem to find a way to offer the least transparent transparency they can get away with. So it is in the energy markets. Ofgem's ever-searching spotlight So how bad are these web- sites? Well, UK power traders have told me that even the efforts of Bloomberg and Reuters to create online aggregators have failed to result in something user-friendly. Small wonder, then, that some young traders have begun moonlighting as web developers to create their own transparency sites which, for now at least, can be found via Google for free. The truth is out there – but you have to search for it. for areas needing clarity took a shine to the disclosure of "inside information" this week. The very idea of insider trading brings to mind a little cloak and dagger subterfuge, back room whisper- ings… a far cry from the simple way power generators can, and oen do, game the system: have a rubbish website. The rules are simple enough: let the market know what you know before you use that information to trade. But if your "transparency webpage" is useless enough, the competition won't be any the wiser when you snap up some power volume bargains aer your CCGT has quietly dropped off-line.

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