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UTILITY Week 26th June 2015

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26 | 26TH JUNE - 2ND JULY 2015 | UTILITY WEEK Markets & Trading This week Bills still high despite record low gas prices Price of winter gas is almost as low as it can go, but customers' gas tariffs remain the same The market price for gas this winter has hit record lows aer losing almost half its value over the past four years, although retail gas prices have remained stubbornly high despite political pressure to pass on lower costs. Market experts say the price of winter gas is now almost as low as it can go. The value of gas for delivery this winter was first traded in the wholesale market at around 81.45 pence per therm in 2011 but in the past week set a fresh record low of 47.4p/th, almost half the level paid by companies that may have forward hedged a part of their portfolio in advance. Energy secretary Amber Rudd spoke out soon aer taking up her role last month to say the big six should pass on lower costs aer the threat of a Labour govern- ment price cap was swept aside by the Conservative Party's election victory. Her calls come as wholesale energy prices have crashed over the past year. Global oil markets hit historic lows because of a glut of new production projects that have flooded the market. But losses have persisted on the UK gas market despite the stabilisation of Brent crude prices in recent months. Market analysts at Icis say the winter 2015 gas contract set a record low in January at 47.80p/th and fell further at the start of June to 47.75p/th. The most recent record low is 11 per cent below the value seen at the end of 2014 which was 53.3p/th, Icis data shows. Head of power Zoe Double says prices have "not much further to fall". "We've heard from market participants that winter gas prices will be hitting a floor fairly soon," she said. JA ELECTRICITY Demand side vital to balancing by 2030 National Grid will overhaul the way it balances the UK's electricity system to rely mostly on demand-side measures rather than generating assets by the end of the next decade. Currently the transmission system operator spends about £850 million a year to keep the UK's supply and demand in bal- ance, with the vast majority of this spent on paying generators to ramp up or curtail power out- put to meet fluctuating demand. But National Grid's head of commercial operations Duncan Burt told Utility Week that it is preparing to revolutionise the way it maintains secure supply by relying on demand-side measures for "well over 50 per cent of the time" by 2030. In the next five years National Grid says it will work with com- mercial and industrial energy users to "normalise" the use of demand-side response before engaging with the domestic sector to broaden the scale of flexible demand capacity. "Even three years ago I would not have said that demand-side response would play as big a role as we expect it to now," he said. National Grid has long procured limited demand- side services and encouraged demand-side management but the increased deployment of intermittent renewable genera- tion, advances in demand-side technology and a greater need for business to reduce energy costs means an active demand side market is "critical", said Burt. ELECTRICITY Drax closes in on carbon milestone The UK's largest power station will reach a key decarbonisation milestone next month, a year aer it was ranked the UK's dirti- est in terms of carbon emissions. The generator said that in the next month the plant – which provides 7-8 per cent of the UK's electricity – will save its 20 millionth tonne of carbon since it began the process of convert- ing its coal-fired power units to burning biomass. By the end of 2017 the plant expects to save its 50 millionth carbon tonne, it said. The plant first started using biomass rather than coal about ten years ago, but in 2014 it was still ranked the UK's dirtiest power generator by the Climate Action Network. The plant was ranked the sixth largest polluter in Europe in the same study. Chief executive Dorothy Thompson said: "Drax is already Europe's largest decarbonisa- tion project, and we believe that there is potential for significant additional carbon savings through the conversion of fur- ther units." Rudd called on big six to pass on lower costs Tricks of the trade Jillian Ambrose "Rudd's calls have been met with a stony silence" It wasn't so long ago that newly appointed energy secretary Amber Rudd called on the UK's big six energy suppliers to cut retail energy prices, arguing – rather sensibly – that without the threat of the much-mocked Labour price freeze pledge, those tumbling wholesale prices should be passed on to the end consumer. As early indicators go, Rudd's insistence that the evidence- based market weakness is some- thing that benefits consumers rattle and the Dutch can cut gas production for fear of earth trem- ors, but with the steady stream of LNG cargoes making their way to UK shores, traders are relaxed. And apparently so are the energy companies. You'd assume that with the scrutiny of the Competition and Market Author- ity still weighing on the minds of the big six, there'd be a strong incentive to prove how much healthy competition there really is. Not as strong as the incentive of weighty profits, it seems. suggests she might be the right person for the Department of Energy and Climate Change. In early June – when Rudd first called on suppliers to cut prices in line with costs – whole- sale gas prices for this winter had tumbled to a fresh low of 47.75p/ th, well below the pre-Brent crash levels over 80p/th in 2011. But since then, Rudd's admirable calls have been met with a stony silence from the big six. In public at least. And in the background gas prices have kept trending lower, with the market shrugging off concern over any possible supply disruption stem- ming from matters geopolitical or geological. Russia can sabre

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