Utility Week

UTILITY Week 10th October 2014

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28 | 10th - 16th OctOber 2014 | UtILItY WeeK Markets & Trading This week Supply concerns lift power market prices Uncertainty over european gas imports and nuclear capacity pushes up UK wholesale prices Wholesale power prices in the UK market climbed steadily in the third quarter of this year, in increasingly volatile trade, due to supply concerns over Euro- pean gas imports and nuclear availability, market analysts said. In its latest quarterly report on the power market, Icis said tensions in Ukraine had led to some of the largest day-on-day price moves, as the mar- ket reflected the volatility in the region. "Russia does not export gas to the UK directly, but any interruptions of Russian gas supplies to continental Europe would have a knock-on effect on the UK market," Icis explained. In addition, the price reporting agency said its Icis Power Index (IPI) climbed from a low of £46.373/MWh on 10 July to just over £52/MWh by the end of September as a result of the unexpected shutdown of almost 3GW of nuclear capacity ahead of winter. At the time, Utility Week reported that the UK's sup- ply margins could halve aer the unexpected loss of four of EDF Energy's nuclear reactors, which were taken offline because of safety concerns. EDF Energy is plan- ning a staggered return for its nuclear units through the first half of the winter. Although the IPI price trend over the year is lower than in January, the latest price moves could still cause energy firms to raise retail prices, said Zoe Double, head of power at Icis. "Energy companies are actively buying and selling electricity in the market for delivery over the next year, so any price rises on the wholesale market could affect what consumers pay later on," she said. JA energY Wylfa extension to ease winter shortfall The Office for Nuclear Regula- tion has granted Magnox's 490MW Wylfa-1 nuclear power unit a generation life extension until the end of 2015, which could help to ease the coming winter's capacity crunch. The UK's oldest nuclear reac- tor might otherwise have been taken offline at the end of this year, but the regulator said its "comprehensive assessment" of the site revealed "no issues of nuclear safety significance" that would derail the operator's plans to run the unit for a year longer. Utilities analysts at Citigroup said the extension could help to offset the recent loss of a quarter of EDF Energy's nuclear fleet due to safety concerns over the boiler design of its Heysham-1 and Hartlepool plants. The unexpected loss of 2.5GW of nuclear capacity could result in the UK's capacity margins fall- ing to half of what was expected for this winter, which prompted National Grid to open a tender for supply-side contracts last month to guard against the risk of blackouts. EDF Energy plans a "phased return" of its units between the end of October and the end of December 2014. Wylfa's safety review took into account a ten-year period from 2014 and found that generation could continue at the site for another year, with early defuelling and decommissioning work to follow until 2024. ONR's deputy chief nuclear inspector, Mark Foy, said: "Our assessment has identi- fied no issues of nuclear safety significance that could impact power generation at Wylfa to the planned end date of December 2015." energY SSE signs six-year gas deal with Statoil Energy utility SSE has secured a six-year gas supply deal with Norwegian oil and gas giant Statoil. The 500,000 therms per day gas contract represents 6 per cent of SSE's average daily gas demand and falls within a wider procurement portfolio, including investment in fuel production and participation in wholesale gas markets. "By maintaining a diverse and balanced portfolio of con- tracts and assets, both long and short term, SSE has greater abil- ity to manage wholesale energy price volatility, thereby protect- ing customers and ensuring greater retail price stability," the company said in a statement. SSE did not disclose the value of the deal, but said it was secured based on the prevailing price of gas sourced from the wholesale market. Russian gas supply: knock-on effect on the UK Tricks of the trade Jillian Ambrose "Already there are cries that the auction will favour coal" The FT's damning indictment of Germany's renewables-heavy energy policy this week couldn't have come at a more opportune time. UK energy market prices have begun to climb as tempera- tures drop, and the inevitable backlash against the bills we pay as a result will no doubt follow. But in Germany, the heavy influ- ence of subsidies on the market has steadily weighed down wholesale prices to half that of the UK market, while retail prices remain eye-wateringly high. of the few investable options. UK traders have long been taking note: aer all, it won't be long before the full brunt of the UK government's interventions is felt. Already a capacity market auction is needed to ensure con- ventional capacity can survive alongside CfD-supported renew- able. Already there are cries that the auction will favour coal. If the German example is anything to go by, UK consumers would do well to enjoy the £1,200 aver- age dual fuel bill while it lasts. The forward price of power in the UK is around £51/MWh on the wholesale market, according to the Icis Power Index, while German year-ahead power has slumped to a three-month low of £26/MWh this week. German consumers nonetheless pay bills almost 50 per cent higher than the average European bill. Germany's Energiewende – or "energy transition" – reflects what happens when a government intervenes to prioritise policy over a function- ing market. Out with nuclear, in with renewables – but as a consequence, German gas-fired power simply cannot compete and coal steps forward as one

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