Utility Week

UTILITY Week 15th May 2015

Utility Week - authoritative, impartial and essential reading for senior people within utilities, regulators and government

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UTILITY WEEK | 15TH - 21ST MAY 2015 | 29 Markets & Trading This week UK power market set for gas-fired summer Dramatic rise in carbon tax expected to shift economics of energy mix towards gas-fired power The UK power market will turn increasingly towards the use of gas-fired power this summer, market analysts predict, as coal generator profits are set to halve in response to the dramatic increase in the carbon tax. The Treasury-enforced tax on coal emissions almost doubled in April from £9.55/MWh to £18.08, shiing the econom- ics of the energy mix towards more profitable gas-fired power, according to market experts at Icis. But even with the higher carbon tax in place on 2 April, coal-fired profitability has taken a further hit from falling oil prices and currency values. The profita- bility of coal-fired power in the third quarter of this year was estimated at a yearly high of £5.72/MWh, but has slumped to just £2.58/MWh a month later, Icis reported. Dollar-denominated coal offered less value for money to UK purchasers, who have been hit by a weaker sterling-dollar rate, while at the same time losses on the Brent crude market are expected to feed through to oil- indexed gas contracts through the summer. The full benefit of lower oil prices is expected to be felt in long-term gas contracts by the third quarter, meaning many buyers are delaying delivery of their sup- ply agreements to take advantage of the lower rate and secure the most profit from their gas-generation fleet. By contrast to coal profits of £2.58/MWh for Q3, gas- fired power will be almost £3. "These dynamics mean that combined-cycle gas turbines could out-compete coal plants for meeting British power demand in the three-month period," Icis editor Albert Evans said. JA RENEWABLES Low-carbon tech is 'less disruptive' Low-carbon technologies, such as electric vehicles and renewa- bles, are "less disruptive" than previously predicted, according to distribution network operator (DNO) Northern Powergrid. The findings come from the DNO's Customer-Led Network Revolution (CLNR) scheme, which discovered that there is "little evidence" of customers' new low-carbon technology installations creating power quality problems. The research also revealed that the majority of domestic customers are "inherently flex- ible", with a significant level of "naturally occurring diversity" in energy practices. Additionally, time-of-use tariffs enabled by smart meters "could deliver value in the next ten years, when delivered in con- junction with energy suppliers", while demand-side response is "fit for business as usual today". Northern Powergrid said the CLNR project has shown "there is no one-size-fits-all solution to address the impact of low- carbon technologies". Northern Powergrid's CLNR project, a collaboration with British Gas, Durham University, Newcastle University and net- work consultancy EA Technol- ogy, was granted a £27 million subsidy from Ofgem's Low Carbon Network (LCN) fund in 2010. ELECTRICITY Tesla batteries could offer huge capacity If 5 per cent of UK customers buy Tesla Motors' Powerwall battery, decentralised energy storage capacity would increase to 10.5GWh, according to Chiltern Power director John Scott. Speaking to Utility Week, he said: "It's easy to overlook the scaling that becomes available with mass deployment. If just 5 per cent of Britain's 30 million customers buy a Powerwall (7kWh), that's a total of 10.5GWh of storage, which is equivalent to the 9GWh Dinorwig pumped storage station in North Wales." "That is serious storage capacity for the British system, and could be attractive from a national perspective provided that it can be harnessed to the benefit of the householder and the power system," he added. But Scott warned it was impor- tant to consider a "whole-system perspective" to avoid "unwel- come and costly" outcomes. "For example, if the households I mentioned before all had time-of- use tariffs that saw a national low price for energy and instructed their home storage to start charg- ing, it could create a 3GW load step that would shut down the National Grid," he said. Analysis, p25 Q3 slump: coal-fired power profitability halved Tricks of the trade Jillian Ambrose "Policy design must give thought to market volatility" Pinning political decisions on a crystal-ball view of traded markets is risky business. But one which politicians are all too happy to go in to, it seems. Just ask former chief secre- tary to the Treasury Liam Byrne, who in 2010 famously le the coalition government a letter saying "Dear Chief Secretary, I'm afraid to tell you there is no money", aer it became appar- ent that Labour's earlier spend- ing policies were at odds with a recession-wracked world. government has already revised these forecasts lower, the report claims they need to be revised lower still. If not, the amount paid out to generators to top them up to the agreed strike price will spiral, leaving the pot empty sooner than expected, the report warns. Alternatively, the right-leaning think tank suggests a change in policy altogether, which might conveniently prove to be just what the anti-wind Tories are hoping to hear. "Dear onshore wind sector…." Although I doubt anyone in Brussels le a pithy note over the failure of the poorly designed EU carbon market, it goes to show: policy designed without thought to the reality of market volatility, is a policy at risk. Returning closer to home, a new report from Policy Exchange has been quick to draw paral- lels between Byrne's letter and the situation befalling newly appointed energy secretary Amber Rudd. The level of subsidy set aside for low-carbon development has been pinned on the government's forecast of where market prices will be in coming years. Even though

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