Utility Week

Utility Week 19th September

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UTILITY WEEK | 19Th - 25Th SEpTEmbEr 2014 | 27 Markets & Trading This week Carbon price drops to two-month lows Weak demand from utilities contributes to fall- ing price of emissions allowances on the EU ETS The price of carbon emissions allowances has dropped to its lowest level in two months as utilities step back from the market ahead of talks to reform the oversupply which has driven prices lower since the start of the recession. The price for carbon paid on the European Union's Emissions Trading System (ETS) stumbled almost 10 per cent lower than its intra-month high, to change hands at around €5.91 per metric tonne of carbon on 16 September. Prices are now a fraction of where there were in early 2009 when allowances were priced at over €25/mt. "A continued absence of utility players emboldened the bears," a client note from CF Partners said of the two-month lows. The losses come ahead of talks in Brussels in the coming week over reforming the chronic oversupply in the market through a market stability reserve (MSR). But CF Partners added that a reluctance to trade on the part of Europe's major utilities was also playing a role in the weaker price signal. The note blamed weaker sentiment and prices on "a realisation of likely delays to… MSR implementation"; "higher post-summer auction volumes; and "weak interest from utilities on the buy side". The trading firm believes that further losses on the carbon market around €5.75/mt are possible over the coming weeks. The European Parliament is expected to resume talks on the proposed market reform on 24 September. JA See analysis, p28 ELEcTrIcITY UK capacity market saps DSR, says Yeo The UK's Energy and Climate Change select committee has criticised the government's upcoming capacity market, say- ing it favours the development of new generation over the use of demand-side response (DSR) options that could save consum- ers up to £359 million a year. Chairman Tim Yeo said the committee had "serious and legitimate concerns" over the structure of the capacity market auction, which offers contracts of up to 15 years to those devel- oping new generation capacity, while those offering DSR options could at best secure a one-year contract. Yeo said the design of the capacity market could "encour- age the construction of expen- sive new power stations" at the expense of "cheaper and greener alternatives". In a letter to energy minister Matthew Hancock, Yeo said: "It would be far more cost-effective to facilitate the use of DSR, where rapidly evolving technology is opening up new opportunities," adding that analyst estimates show annual potential savings of £359 million could be missed. Yeo also voiced concerns that the bias may be due to National Grid's vested interest in increas- ing transmission capacity to bolster profits. "It is impossible for National Grid to give objective advice to government on this issue since the profitability of their regulated UK business is directly linked to the construction of new transmission capacity," he said. ELEcTrIcITY Carlton to boost its bid with CCGTs Independent generator Carlton Power has moved forward the plans for its Trafford Power com- bined cycle gas turbine (CCGT) and has bought a stake in General Electric's Thorpe Marsh CCGT, in order to bid more than 3GW of installed capacity into the government's capacity market auction. Carlton Power has signed an agreement with a consortium including GE and Spanish com- panies Tecnicas, Reunidas and Ferrovial Agroman for the engi- neering contract to construct the 1.8GW Trafford Power project. In addition, the company bought GE's stake in the 1.5GW Thorpe Marsh CCGT, Carlton Power said. Both projects, representing a total investment of £2 billion, have already received govern- ment consent, although the final decision on whether construc- tion moves forward will depend on the outcome of the UK's first capacity auction, which is to be finalised at the end of this year for delivery in 2018/19. No deal: market waiting on Brussels Tricks of the trade Jillian Ambrose "You don't have to break rules to make them work for you" Rules are meant to be broken, right? It's easy to imagine, while we brush off the lingering economic debris of the crash, that this is the go-to adage for market traders. We've seen the stories: rogue traders, brazenly flouting rules that they think they are above. Even in the UK's gas mar- ket, the dust has only recently settled on The Guardian's front- page allegations that players were colluding to rig the Icis price index. But that's the point that. Anyone who remembers the rampant gaming of the mar- ket "pool" system will be well acquainted with just how much of a farce poorly thought out market regulation can become. But the rest of us needn't feel le out: the upcoming capacity market offers a smorgasbord of rules, and – one imagines – just as many ways of making them work in the favour of those who understand their limitations the best. Let the games begin. – these stories make the news because they are the exception, not the norm. In the current regulatory reality, compliance officers, regulation experts and lawyers outnumber the traders to ensure iron-clad due diligence. No trader goes out to break the rules. These are people whose days are spent making split- second decisions on risk and return. And possibly losing your career is not a risk worth taking. But you don't have to break the rules to make them work for you. And when you have enough compliance officers around, you can be sure that there will plenty of options found for doing just

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