Utility Week

UTILITY Week 22nd May 2015

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26 | 22ND - 28TH MAY 2015 | UTILITY WEEK Markets & Trading This week Centrica increases import dependence Top supplier extends gas supply contracts with Norway and Russia to meet half of UK demand Centrica said on 13 May it plans to extend its gas supply con- tracts with Norway and Russia in a move that highlighted the UK's increasing dependence on imports to meet demand. The UK's biggest supplier of gas will increase its contracted supply with Norway by 50 per cent, and with Russia by 75 per cent to meet half of the UK's 70 billion cubic metre (bcm) per year demand. Centrica already has a ten-year supply contract with Norway's Statoil for 5bcm of gas per year, signed in 2011, and a second three-year contract with Russia's Gazprom for 2.4bcm, which was signed in 2012. Under the terms of the new deal, Centrica will import 7.3bcm a year from Norway for the next six years and a total of 29.1bcm from Russia until 2021. Centrica said: "Britain needs around 70bcm of natural gas each year to heat homes and businesses and to generate electricity, and the UK now needs to import more than half of this." "The long-term supply agreements with Statoil and [Gazprom] will meet the gas needs of nine million Brit- ish homes every year and take the total amount that Centrica has committed in securing gas and electricity, through a range of suppliers, to over £50 billion," the company added. The exposure to Russian gas imports in particular has raised concerns that the UK is increasingly depend- ent on supplies that could be interrupted as a result of technical or geopolitical disruptions. JA ENERGY Capacity auctions 'central to security' SSE has urged the new UK gov- ernment to maintain its capacity auction regime, saying it should remain a "principal mechanism" in securing long-term affordable energy for consumers. The company's chief execu- tive, Alistair Phillips-Davies, said the new government should focus on unlocking invest- ment in electricity generation, keeping bills as low as possible and the implications of an EU referendum on the integration of European energy markets. Through the most recent capacity auction SSE secured agreements to provide almost 4.5GW of de-rated generation capacity from October 2018 to September 2019 at a price of £19.40/kW. Phillips-Davies said the auc- tions provide the best chance of keeping costs to consumers as low as possible. Finally, he said the upcoming EU referendum would also affect efforts to ensure stability and certainty of investment in UK energy, adding that he had "no view" on the issue at present. "However I am clear that the progressive integration of the GB energy market with other countries in Europe is in the best interests of efforts to deliver clean, affordable and secure supplies of energy," he said. Phillips-Davies said SSE looked forward to working with the new team at the Department of Energy and Climate Change. ENERGY Carbon market confidence for 2015 The growing confidence in the EU's carbon market looks set to continue this year, with a key industry survey showing a more positive attitude to the EU Emis- sions Trading System. The annual Point Carbon Market Survey from Thom- son Reuters showed a greater acceptance of the cap-and-trade scheme designed to reduce European emissions through a market-based approach rather than through subsidies or taxes. Those surveyed who believed that the system was "ideal" reached 19 per cent in the latest survey, and 66 per cent consider it "the best we can agree on". The number who believed the system did more harm than good fell from 11 per cent last year to 8 per cent this year. "This year's results indicate that the increased confidence of 2014 shows no signs of slowing," said senior Point Carbon analyst Anders Nordeng. "2013 saw an all-time low for sentiment, with falling prices and doubts about political commitment. But things picked up in 2014 and this posi- tive trend looks set to continue in 2015 too." Centrica has secured 29bcm of gas from Russia Tricks of the trade Jillian Ambrose "But at least it's the devil we know" It says something when the best that can be hoped for is an absence of something terrible. But so it seems in the energy markets of late. The annual benchmark survey of attitudes in the carbon market was welcomed as a sign of sunnier sentiment. But it's worth noting that the barometer, for its improvement, does not indicate an increase in sup- port, but rather a decrease in those who believe the market is doing more harm than good. support for pushing forward on developing domestic shale gas reserves. And yes, despite this stance she has still found a warm welcome from environ- mentalists because, frankly, she's not as much of a raging climate sceptic as many of her Tory counterparts. In fact she'll be pushing for ambitious climate targets in Paris this year, just as soon as she's cut support for onshore wind. Reasons to be optimistic all round then. Only 19 per cent would say the market is ideal and the majority (66 per cent) say it's "the best we can agree on". Hardly a ringing endorsement. Also emerging this week is the not-terrible (read: great) news that Centrica has secured the UK's heavy demand for gas imports from arguably the least secure gas producer in the world. UK homes and businesses are now more dependent than ever on a politically fraught rela- tionship with Russia, but at least it's the devil we know rather than the capricious whims of the global LNG market. Just as well new energy minister Amber Rudd has voiced

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