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28 | 3rd - 9th OctOber 2014 | UtILItY WeeK Markets & Trading This week Russia-Ukraine deal cools winter gas price Favourable market conditions for gas-fired plant in the UK as traded gas prices fall The price of gas for delivery this winter slumped 4 per cent following news that Russia and Ukraine had agreed a gas sup- ply deal covering the next six months. Market sources told Utility Week that the price of winter gas on the UK wholesale market rose from a close of 58.80 pence per therm on 25 Septemeber to 59.20p/th the next day, but prices reversed the trend to tumble below 58p/ th following news that an agreement in principle had been reached between the two countries on 26 Septem- ber. The contract price of winter 2014/15 gas hit lows of 56.50p/th, a trader told Utility Week –4.5 per cent below its high on Monday 29 September. Over recent months market players factored in a risk premium to gas prices due to concern that supply from Russia, Europe's largest gas supplier, might be disrupted due to tensions with its neighbour and key gas-transit state Ukraine. Uncertainty over the volatile situation in the region supported gas prices across Europe despite an otherwise bearish market for gas due to low temperature-led demand last winter and healthy gas storage levels as a result. A UK power trader told Utility Week that gas prices are now falling faster than wholesale power prices, which could mean more favourable market conditions for gas-fired power generators. UK power prices are expected to remain supported by a capacity crunch expected this winter following a string of unplanned outages. JA eLectrIcItY Eggborough capacity boosted by 500MW Eggborough coal-fired power plant will run 500MW more capacity than initially expected, helping to ease the UK's con- strained supply margins ahead of winter. A spokeswoman for the 2GW generator said all four of its units would run this winter, but stopped short of confirming whether its fourth unit would be returning to service this November under National Grid's precautionary tender process for supplemental balancing reserve. Until last week, Eggborough said one of its four units would need to close aer the govern- ment snubbed its application for the funding of a biomass conver- sion unit in December last year. The change in plans came about three weeks aer National Grid said it will manage the increased risk of a supply shortfall this winter by tendering for an undisclosed amount of supply-side reserve. Power market participants told Utility Week the decision to run the unit could be economic with or without a supply-side contract from National Grid, due to favourable market conditions. Wholesale prices for power to be delivered in Q4 are firm fol- lowing a string of outages which have tightened the margins between supply and demand, while the cost of coal remains bearish, boosting profitability for coal-powered generators. eLectrIcItY National Grid awards DSBR contracts National Grid has awarded con- tracts totalling 319MW to large energy users able to reduce their demand over the coming winter. National Grid opened its ten- der for the modest demand-side balancing reserve (DSBR) capac- ity in June. Its plans to balance supply and demand this winter came under pressure following a string of unplanned outages, including the fire-damaged Ferry- bridge coal-fired power plant and four of EDF Energy's nuclear reactors, which were taken offline due to safety concerns. Companies including Tata Steel and Flexitricity have been contracted to reduce demand on the national power grid for the peak demand hours of 16.00 to 20.00, but National Grid needs to take further measures to combat a 3GW-plus hit to supply margins due to the outages. As a result, in early Septem- ber the grid operator announced plans for a tender process for Supplemental Balancing Reserve (SBR) for an undisclosed amount of capacity. These contracts will be announced ahead of National Grid's official winter outlook report expected in late October, a spokesman confirmed. In the pipeline: agreement in principle reached Tricks of the trade Jillian Ambrose "The grenade of the price freeze could still explode" So it looks like this year's party conference season is unlikely to bring the kind of energy market omnishambles that exploded last year. That's one thing for the energy bosses to be grateful for. But the surprise political grenade that was Labour's 2013 price freeze pledge could still explode. So what would it mean for those on the front line who might be forced to battle the pledge head-on if Ed Miliband run their plant without incurring heavy losses when taking these volumes to market. And why would anyone do that? Presumably, Labour believes utilities will continue to generate power at a loss in the winter for an assumed profit in the summer. But what's to stop power companies from point-blank refusing to take the hit and letting the lights go out? Aer all, it would be on Red Ed's head. defies the naysayers in next year's election? In very simple terms, the UK's gas and power traders are tasked with securing the right amount of gas and power at the best possible price. But even these basics of the job could be heavily undermined by the freeze. As one trader explained to me: if you cap the retail price, you effectively cap the price that generating power can achieve in the market. Generating at costs beyond what you could recover at market would make no sense. So if the cost of gas were to soar over winter, gas-fired generators would not be able to