Utility Week

Utility Week 5th June 2015

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UTILITY WEEK | 5TH - 11TH JUNE 2015 | 29 Markets & Trading This week Price of electricity falls 11% year on year Average price in May this year just £44.67/MWh, despite an almost doubling of the carbon tax Wholesale power market prices fell almost 11 per cent in May compared with the same month last year, despite the carbon tax doubling over the same period. Whereas in May last year the average price of power bought in advance from the wholesale mar- ket was £50.07/MWh, the average price in May this year was just £44.67/MWh, according to the Icis Power Index. The market expert's findings follow months of steadily falling global commodity prices due to historic losses on the oil markets, which have now fed through to UK gas and power prices. And the data is likely to raise questions over whether UK energy suppliers should cut retail prices. Icis electricity editor Jamie Stewart told Utility Week the falls were particularly significant in light of the fact that the carbon price support tax was actually higher on the seasons trading in May of this year than it was on those trading in May 2014. In April this year, the Treasury-mandated carbon tax climbed from £9.55 per tonne of carbon to £18.08/tonne, saddling UK generators with extra carbon payments in addition to the offset allow- ances required by the EU's Emissions Trading System. Stewart said the lower price of electricity has been prompted by weaker gas prices, which reduce costs for much of the UK's gas-fired power generation fleet. "The driver here is really the long, sustained drop in energy market prices that occurred from late November last year until February of this year. This was driven by a mild winter and comfortable gas inventories, as well as the delayed effect of the oil price crash which lasted throughout the second half of last year," Stewart said. JA ENERGY Think tank calls for carbon tax to be axed The UK's Conservative majority government should abolish the carbon tax levied against UK power generators, according to the Centre for Policy Studies. The right-leaning think tank has called on the government to scrap the carbon price floor in the new Treasury budget due in July, telling the Telegraph that it risks the UK's security of supply. In the newspaper's opinion column, research fellow Tony Lodge blamed the carbon tax for the recent closure announce- ments for the Longannet and Fer- rybridge coal-fired power plants. "The coalition hoped that new gas-fired power stations would be built, but this hasn't happened and the much-heralded new nuclear power station at Hinkley Point in Somerset is at best a decade away. Wind and solar will not plug the hole," he warned. Currently, the tax stands at £18.08 per tonne of CO2 emitted, in addition to the ETS, meaning UK coal generators pay a total of £23.38/tonne compared with just £5.30 in the EU. ELECTRICITY Drax to supply power to Thames Generating giant Drax will sup- ply Thames Water with renew- able electricity in a five-year deal through its business retail arm Haven Power. The £500 million supply deal includes the option of two five-year extensions which could increase the total value of the deal to £1.5 billion. Thames already sources about 20 per cent of its electricity through self-generated renewa- bles such as solar, wind, hydro and biogas, but the Drax deal will enable it to meet all its elec- tricity needs from renewables. GAS SSE to quintuple supply from Norway SSE is set to dramatically increase its dependence on Norwegian gas supplies, by boosting its current supply contract with Statoil to five times its current level. The UK's second largest utility has a six-year deal with the gas supplier which runs until 2021, but said that from this October the amount of gas imported per day will rise from about 0.5 mil- lion therms to 2.5 million therms. The additional capacity represents 3 per cent of the UK's gas demand and 25 per cent of SSE's, the utility said. The UK's increasing depend- ence on foreign gas sources was highlighted last month with the news that British Gas parent company Centrica will increase its contracted supply with Norway by 50 per cent, and with Russia by 75 per cent. Gas generation costs have been reduced UK forward power prices 60 55 50 45 40 35 30 ONE-YEAR FORWARD ELECTRICITY PRICES, ICIS 30 Apr 2014 30 Jun 2014 31 Aug 2014 31 Oct 2014 31 Dec 2014 The UK's forward power prices continue to trend downwards despite tighter gas supplies and concerns over a shortage of UK gas storage, according to the Icis Power Index. Although it is normal for power contracts to trade lower moving into the summer months, the IPI shows significantly lower value compared with the same period last year. And the weaker price signal is expected to boost political pressure for lower retail prices. For more, see story above. 30 Apr 2015 28 Feb 2015 IPI value £/MWh 20-day rolling average Linear (IPI value £/MWh) Less concern over gas supply and LNG deliveries to the UK rise Russia and Ukraine sanctions activity cause concern over winter gas supply Gas concerns ease as Russia resumes supply to Ukraine with interim agreement Gas oversupply, low oil prices and warm temperatures depress prices North Sea gas field outage with tighter supply surplus boosts prices Netherlands caps domestic gas production to July, reducing supply Concern over potential UK gas storage shortage boosts prices Seasonal changeover; 2015 season prices include higher carbon price support level

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