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Markets & Trading This week Renewables risk puts premium on power Traders are paying up to 20% more for advance power because renewables output is unreliable. UK power traders have been pay- ing almost 20 per cent more for power bought in advance than its price turned out to be on the day because renewable electric- ity output is proving so difficult to predict. Utilities will typically buy part of their supply portfolio as early as six to 12 months ahead through long-term contracts, and top up their supply by buying on the spot market, which is typically more volatile. However, as the proportion of the UK's energy mix shis towards intermittent and unpredictable wind and solar power, the value of long-term contracts is becom- ing difficult to estimate. Traders cannot guarantee that renewable energy will contribute to the UK's thin power supply margins, so they must price in the risk that renewable output could be lower than expected. Price data from market experts at Icis show that the difference between the cost of buying electricity in advance and buying on a day-to-day basis is widening each year, meaning utilities are now more likely to delay their buying to avoid the "renewables risk". Last winter the average price of a winter 2014 con- tract over the nine-month period before October of that year was £52.15/MWh, 18 per cent more than the average price of buying power during the winter on a day-to-day basis, which was £42.66/MWh. The difference in winter 2013 was just 12.2 per cent, but the long-term contract premium is expected to grow as renewables claim a greater stake of the market. JA ELECTRICITY Weak euro offsets rising EU ETS costs The UK's thermal generators have dodged the full impact of rising emissions costs through the European carbon market because foreign exchange rates have wiped out over half of the market's 2015 gains. The cost of carbon emissions through the EU's euro-denomi- nated Emissions Trading System (EU ETS) has been steadily rising this year since the European Commission agreed to reform the flagging market. But at the same time the EU's economic woes have caused the region's currency to plummet, allowing the UK's thermal gen- erators to side-step the brunt of this rising cost under the protec- tion of the stronger pound. Price data from market specialists at Icis show that the average price of carbon emis- sions rose from €7.05 per metric tonne of carbon emitted to levels currently around €8.35/mt. But these 18.5 per cent gains translate to gains of just 10 per cent when paid in sterling. In January the average carbon price in pounds was £5.45/mt and is now only slightly stronger at around £6/mt, Icis data shows. However, any competitive advantage felt by UK generators by remaining relatively insulated from the strengthening EU ETS is more than offset by the UK's government carbon price sup- port tax, Icis head of power Zoe Double told Utility Week. "In January, the average EU ETS carbon cost was £5.45/ tCO2e, compared with £5.75/ tCO2e [in August]. Compare that with the £18.00/tCO2e that UK generators are paying on top of the EU ETS, and these gains are pretty insignificant," she said. GAS Flogas secures LNG contract with Engie Industrial gas supplier Flogas has secured a long-term supply deal with major liquefied natural gas (LNG) player Engie, with delivery set to begin within weeks. Engie will deliver 8,000 tonnes of LNG through the Isle of Grain terminal over the next 18 months, where Flogas will use as many as 400 trailers to transport the gas to its industrial customers that are not con- nected to the gas grid, it said in a statement. Flogas is firmly established as a leader in the off-grid market, but last month announced plans to expand into mains grid supply. The company said in early August that its move into mains gas fitted its strategy of "broadening our offer as the total energy provider, and sits alongside our current portfo- lio of LPG, LNG, solar PV and biomass". Risk is hard to calculate Tricks of the trade Jillian Ambrose "The North Sea's woes are existential" It has not been a good summer for the North Sea. A new report from Oil and Gas UK has found that invest- ment in the region is being "severely undermined" by low oil prices, which means what- ever capital you put in you're unlikely to ever see again as returns. Brent has fallen from above $63 at the start of July to around $46 per barrel at the time of writing, due to persistent over- supply and growing concern still be used as a mark against which two-thirds of the world's oil trade is measured, or whether more productive North Sea fields should carry the mantle. It could even be an Asian benchmark which takes Brent's place beyond the medium term, given that the region is an increasingly important destina- tion for volumes. Which is just as well. Aer all, the Statord, Flotta, or Johan Sverdrup crude price just doesn't have quite the same ring. about demand levels from China and other Asian economies. And there's little hope that Opec will reverse its stubbornly held refusal to lower its output to force prices up, not least because Opec members have suggested they won't be willing to support prices unless Russia does the same. But the North Sea's woes are more existential than that. A second late summer report has questioned whether Brent should be held as a global oil benchmark at all. The giant Brent field's heyday in the 1970s has fallen away as reserves decline and some are wondering whether it should UTILITY WEEK | 18TH - 24TH SEPTEMBER 2015 | 25