Utility Week

UTILITY Week 22nd July 2016

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Finance & Investment This week Subsidies for Hinkley quintuple to £29.7bn National Audit Office lays blame for increase on reductions in projected wholesale energy prices The estimated bill for subsidies for Hinkley Point C under the contracts for difference (CfD) scheme has soared to £29.7 bil- lion, a report from the National Audit Office (NAO) has revealed. The figure is nearly five times the original estimate of £6 bil- lion, which was calculated in October 2013 when the govern- ment agreed the contract. The value of the top-up payments increased "due to reductions in projected wholesale prices", the NAO said. Under the CfD scheme, generators are paid the differ- ence between the wholesale price at which they sell their electricity and an agreed "strike price". Under the 35-year contract awarded to Hinkley, the government agreed to an inflation-adjusted strike price of £92.50/MWh. It will fall to £89.50/MWh if the company proceeds with a second new nuclear plant at its Sizewell C site. A spokeswoman for Decc said: "Nuclear is not just a nice to have. It is an essential part of our plan for a 21st century energy system that will power homes and busi- nesses with reliable, low-carbon electricity. "Hinkley will generate enough low-carbon electricity to power six million homes and around £10 from con- sumer bills will pay for it once it is up and running." Although the CfD top-up payments are paid by sup- pliers through the supplier obligation levy, increases in the payments will not lead to higher bills for consumers because they will be offset by lower wholesale electricity prices. TG ELECTRICITY Cap and floor 'cuts storage revenue risk' A "cap and floor" mechanism would drive cost-effective invest- ment in energy storage and save consumers £2.4 billion, accord- ing to a report from Everoze commissioned by Scottish Renewables. Longer contracts from National Grid for support ser- vices, revenue streams designed for stacking, and unlocking new revenue opportunities in the distribution network would also help push down revenue risk, which is holding back storage. Everoze partner Felicity Jones said: "If the overwhelming challenge for the solar and wind sector has been cost reduction, the key challenge for storage is getting financiers comfort- able with the merchant risk of revenue streams." WATER Wessex pre-tax profits drop £12m Wessex Water has revealed that its pre-tax profit dropped £12.2 million in 2015/16. The water supplier also revealed that turnover fell by nearly £20 million to £520.8 million. Operating profit has dropped as a result of a £2 billion programme of work for major water and sewerage improvements. However, customer bills have dropped by five per cent since April 2015. The programme includes a £39 million scheme to improve bathing water quality in the Burnham-on-Sea area to meet tighter standards. A new water supply grid is also being built. Wessex Water chief executive Colin Skellett said: "2015/16 was the first year of a new five-year price control. "We have made an excellent start and performed well against our commitments, achieving industry-leading customer service and environmental per- formance." ENERGY Brexit adds £364m to capacity costs The vote to leave the European Union will increase the costs incurred during the next capac- ity auction by £364 million, mar- ket intelligence firm Cornwall Energy has predicted. Without the uncertainty created by Brexit, the auction would have cost "in the region of £2.1 billion", rather than the £2.4 billion now predicted. "Throughout the period of the Brexit negotiations, we can reasonably anticipate a risk pre- mium being priced into all for- ward capacity market auctions, the cost of which will ultimately flow through to consumers' bills," it said in a report. Decc says Hinkley is essential to energy system UTILITY WEEK | 22ND - 28TH JULY 2016 | 21 Stock watch DONG ENERGY SHARE PRICE, 9 JUNE - 19 JULY Dong Energy's expansion into renewable energy should protect it from fluctuations in commodity prices and falling revenues from its oil and gas division, Moody's has said. When the company was floated on the Copenhagen stock exchange last month, investors were initially offered shares at a price of 235 Krona, but in early trading these rose to 259 Krona. Since then the price has remained consistently high, trading at 254 Krona at the time of going to press. 260 255 250 245 240 235 9 Jun 14 Jun 21 Jun 28 Jun 5 Jul 12 Jul 19 Jul

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