Utility Week

UTILITY Week 27th February 2015

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UTILITY WEEK | 27Th FEbrUarY - 5Th March 2015 | 27 Markets & Trading This week Carbon price rallies to two-year high Market lifted by rumours of brussels moves to introduce a market stability reserve soon T he EU's carbon price rallied to two-year highs ahead of a key Brussels vote on market reform to relieve the crippling oversupply which has distorted price signals for low carbon developers. Carbon allowances rose to their highest level since Decem- ber 2012 on Monday 24 Febru- ary at €7.76 per metric tonne of carbon emitted, as leaked documents from Brussels lawmakers seemed to show a consensus on when to introduce a market stability reserve (MSR) ahead of the Tuesday vote. The policymakers agreed on Tuesday to put the MSR in place from December 2018 to absorb the backloaded supply of carbon allowances rather than allow them to re-enter the already oversupplied marketplace. By reduc- ing the glut of allowances it is expected that the price of carbon will begin to rise to a level that might incentive low carbon investment. A carbon analyst at Thomson Reuters' Point Carbon unit told Utility Week the leaked document had signalled a "strong political will to reform the market" earlier than expected by market participants. Whereas prices had begun to fall the week before on concerns that a strong agreement might not be reached, Monday saw a rally of 5 per cent following the increased political support. UK energy secretary Ed Davey along with either other EU ministers called for an even earlier start date of 2017 in a letter made public ahead of the vote. JA Gas Gas price rises on Russian worries Renewed concern over potential disruption of Russian gas supply to Europe has bolstered market prices across the UK and conti- nental gas markets. Europe's largest gas supplier said on Tuesday that neighbour- ing Ukraine has still not made the prepayment required to receive more gas, despite having just two days' worth of supply le. As a key gas-transit state for Russian gas deliveries, Ukraine's security of supply woes have heightened concern in Europe, liing prices for gas delivered next month. UK gas for delivery in March rallied by more than 4 per cent midweek to 49.80 pence per therm as a result, with power prices following suit. Gas for the summer delivery period, which runs from April to September, saw gains of just 2 per cent to 46.20 p/th as traders price in the likelihood of a reso- lution within that timeframe. ELEcTrIcITY Interconnection governance remains unclear, says Decc official Electricity interconnection will remain a "key part" of the UK's energy policy regardless of the election outcome, but uncer- tainty surrounds how it will be governed, a senior government official has said. The deputy director of the Department of Energy and Climate Change (Decc) David Capper told a London confer- ence the government had a "clear policy" of "at least 5GW of extra interconnection", mean- ing greater interconnection is a certainty for the UK regardless of the election outcome. He also said the government expected to see "more competi- tion in onshore transmission" in the coming years. However, the governance of energy networks was less clear, he told delegates. "One party has already said it wants an energy security board. They've also said that the regulator should have more teeth. But there is also a whole bunch of other stuff around governance. "People speculate about an [independent system operator], they speculate about system architect, they talk about whether the code panels are fit for purpose. "It will be incumbent on us all to look at the nature of those problems and try and figure out what the solutions might be. Those might not be institutional government solutions, there might well be other solutions that we need to consider." Carbon price approaching €8/tonne Tricks of the trade Jillian Ambrose "Why carbon traders are suckers for the news" Pity the carbon trader. For the most part, commodities markets are led by the ebb and flow of physical fundamentals. The more misty-eyed of market pur- ists might describe the dynamic dance between supply and demand as a delicate ecosystem of cause and effect. Aer a few drinks they might, anyway. Less so for the carbon mar- ket. While their gas and power trading colleagues monitor the shis in output from pipelines, storage facilities, windfarms The wavering whims of those lawmakers is a far bigger factor than the subtleties of allow- ance demand as generators flip between gas and coal-fired power. Still, waiting for a news alert that triggers some of the biggest market moves in years is bound to be more fun than mindlessly watching the market languish in the doldrums as it has done in the past. It certainly offers more chance to turn a profit, so perhaps it's not all bad. and interconnectors the carbon trader is shackled to a Bloomb- erg news terminal. The carbon market is too dis- torted and deformed by years of chronic oversupply. Traders are less concerned with the nuances of future demand for allowances than the possible sledgehammer of much-needed market reform. This week leaked documents from the European Commission's environment committee helped carbon prices climb to their highest point in two years by suggesting there was consensus ahead of the 24 February vote on whether to implement the market stability reserve sooner or later.

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