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UTILITY Week 5th September 2014

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UTILITY WEEK | 12Th - 18Th SEpTEmbEr 2014 | 29 Markets & Trading This week EU ETS reform plans poised for progress Eurelectric believes Germany is likely to guide majority view on market stability reserve plans Plans to reform the beleaguered carbon market could take shape within the next two weeks as the position of EU member states on the market stability reserve (MSR) is expected to clarify by the next European Parliament meeting. Jesse Scott, head of envi- ronment and sustainability at pan-European electricity group Eurelectric, told Utility Week she is "optimistic" that a majority view on the MSR plans could take shape, guided by strong German leadership on the issue. "There is a clear, strong German position, which bodes very well indeed for progress on this," Scott said. Germany is understood to back plans to implement the MSR by 2017 rather than delay the reform to 2021, which Scott said would be the "worst possible thing for the market". The MSR would manage the release of allowances back into the market following the so-called 'backloading' plans, which are in place until 2017. Although Brussels policymakers have taken the deci- sion to delay the supply of allowances into the market until 2017 through the backloading plans, the MSR plan would need to be in place immediately aer this to avoid undoing any market benefit, Scott explained. "It would be ludicrous to backload to 2017, reload to 2021 and then bring in the MSR," Scott said. The view is shared by UK think tank Climate Change Capital, which said an earlier implementation is needed because "low investor confidence in the carbon market needs to be restored as early as possible". JA GAS Mild autumn outlook caps gas price gains Gas prices on the UK's wholesale market remain supported by the risk posed by the continuing crisis in Ukraine, but potential gains are capped by predic- tions that the start of the winter season will be mild. The UK's gas storage levels are at some of the highest they have ever been following the previous winter's mild tempera- tures, which reduced the need for gas heating in homes at the beginning of this year. Another mild start to the win- ter means the market could find itself oversupplied, UK traders told Utility Week. The UK's Met Office does not forecast a season ahead, but its three-month outlook report says that its latest predictions for UK mean temperature favour above-average temperatures for September-October-November as a whole. "Overall, the probability that the UK mean temperature for September-October-November will fall into the warmest of our five categories is around 35 per cent and the probability of it falling into the coldest of our five categories is between 10 and 15 per cent," the report said. A UK gas and power trader told Utility Week there is a risk premium priced into the market due to a potential supply disrup- tion of Russian gas to Europe via neighbouring Ukraine, but that fundamentals are increasingly bearish. "Fundamentally [the market is] weak apart from the Ukraine situation, but Ukraine is a mess that is going to drag on," the trader said. EnErGY SmartestEnergy to offer CfD-linked deal Renewable power purchaser SmartestEnergy will offer cus- tomers a new way to sell renew- able energy that complements the UK government's contracts for difference (CfD) regime by aligning the price paid on the wholesale market across the two. The new offering comes ahead of the first CfD allocation round, which will be open from 14-27 October 2014. The new CfD power purchase agreements (PPAs) will offer generators a PPA market price based on the UK's daily auction price, which is set by the N2EX and APX exchanges. This is the same price that is to be used in a CfD for intermit- tent renewables as a reference price. This is then topped up to the level of the strike price, which varies depending on the technology. SmartestEnergy said the offering should help generators "make the most of the new CfD regime". European Parliament: meeting in two weeks Tricks of the trade Jillian Ambrose "Diversity of players could boost electricity wholesale" News this week of First Utility's ten-fold customer increase over the past three years has been universally welcomed as a sign that the retail market is edging closer to something we could all agree is "healthy". And while increased retail competition and consumer choice are reason enough to celebrate, the shi towards a greater diversity of players could prove to be a shot in the arm for the electricity wholesale markets too. bring in large trading houses that might otherwise remain on the periphery. The likes of Dong Energy, Danske Commodities and Shell might see little reason to bother with UK power trade if not for the fact they are trading on behalf of First Utility, Ovo and others. The unintended conse- quences of recent energy policy decisions aren't usually the sort that regulators are happy to draw attention to, but perhaps this time they should. The Competition and Markets Authority has made no bones about differentiating between the energy market behemoth that is the UK's national balanc- ing point gas market (pleasing), and its poorer electricity market cousin (worrying). While one enjoys strong interest from a wide range of energy players across Europe, the power market shows a worrying dominance of vertically integrated players motivated by the same funda- mental drivers. How do smaller players help? In short: they're different. They will have different requirements on different scales and therefore trade in different ways. They also

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