Near-Term Prices Rise, Seasonal Contracts Fall

Near-term power and seasonal contracts continue their recent trends. Government confirms investment in low-carbon innovation. 

The colder weather took its toll on the near-term market last week, with power and gas contracts both experiencing gains. Seasonal contracts, however, moved in the opposite direction – perhaps due to the slight decrease in Brent crude oil. In other energy news, the Department for Business, Energy and Industrial Strategy confirmed its plans to invest around £100mn in low-carbon industrial innovation. 


Near-term Prices Rise, Seasonal Contracts Ease

Near-term Prices Rise, Seasonal Contracts Ease

Near-term power and gas prices continue to rise, whilst seasonal contracts move lower. Government’s Industrial Strategy reveals plans to exempt more businesses from renewables costs. 

There were mixed wholesale prices last week as near-term power and gas contracts increased with seasonal contracts experiencing losses after reaching multi-year highs last week. Day-ahead gas hit a fresh new ten-month high with Brent crude oil and oil prices also seeing big gains on Thursday. The government’s Industrial Strategy, which was published on Monday, showed positive signs for more energy intensive businesses. They also re-affirmed previous objectives in their Clean Growth Strategy. 



Autumn Budget, Carbon Prices and Levies

Power prices move higher, following gas prices. Government’s Autumn Budget underwhelming for energy

Last week’s big talking point was the Autumn Budget. It wasn’t as clear-cut as we expected but important points like the total carbon price were discussed. The government also stated there would be no new low-carbon levies to support renewables until the burden of such costs on the consumer bill is reduced. In the wholesale market, the majority of power and gas contracts increased. Summer and winter 18 contracts grabbed the headlines hitting two-year highs. 

Multi-Year Highs for Seasonal Power

Multi-Year Highs for Seasonal Power

All power contracts follow direction of their equivalent gas contracts 

With cold weather creeping in, demand for power is increasing with day-ahead power contracts rising by 3.1%. In contrast, all other near-term power contracts for this winter decreased. Winter and summer 18 contracts, and the winter 19 contract, all reached two-year highs. After record highs at the start of November, Brent crude oil and coal prices decreased. Finally, the government are in the news with greenhouse gas reduction plans and the 2017 autumn budget. 


Wholesale Prices Hit New Highs

Gas and commodity prices climb, power follows. Ofgem issues update on its Targeted Charging Review

All power contracts increased last week with commodity prices hitting new multi-year highs. Power for December experienced the biggest gains increasing by 2.9%. Gas and Brent crude oil moved in the same direction, reaching eleven-month to two-year highs! Moving away from wholesale prices, Ofgem released an updated version of their Targeted Charging Review Significant Code Review which assesses new options for how consumers are billed for network charges.


New forecast of network charges and large user exemptions

National Grid publishes new forecast of network charges, Energy Intensive Exemptions coming into force

The National Grid dominated last week’s energy news, publishing their quarterly forecast of charges that pay for the systems infrastructure. These charges are otherwise known as Transmission Network Use of System charges (TNUoS). Triad charges, Contracts for Difference and Renewables Obligation schemes were some of the key points discussed. In the wholesale market prices generally increased, but Brent crude oil and coal grabbed the headlines, as both reached their highest prices since July 2015!


Commodities Climb, Power and Gas Follow

Most power and gas contracts increase along with commodity prices. Report suggests higher carbon price needed to help phase out coal

In the energy market last week most near-term power and gas contracts decreased, while all seasonal contracts increased. The market reacted to the National Grid’s Winter Outlook report earlier this month, with power for delivery in November dropping by 4.2%, and prices for December and January falling too. In other energy news, discover why Carbon was a big talking point last week.



Big Six? Top Nine!

The UK energy market is getting more diverse… and that’s official.

Change is in the air this autumn, according to the latest government report on the energy sector. Although the average business customer is unlikely to feel the benefits directly, they can bask in secondhand warmth radiating from the domestic market.

The Department for Business, Energy, and Industrial Strategy’s monthly energy survey is one of those documents which might as well have ‘Wonks Only’ embossed on the front cover. It’s the size of a smallish paperback and packed with statistical tables and dense arguments referencing entities like nominated flows and Herfindahl-Hirschman indices, whatever they are.

But the ‘special features’ sections have often contained a nugget or two. One of those features makes the latest edition unusually appealing. Titled ‘Competition in UK electricity markets‘, it highlights recent growth in the UK’s complement of electricity suppliers, and corresponding falls in the market share of the ‘Big Six’.


The Long View

Good news? Probably. The government economists who authored the survey are a cautious lot who like to take the long view, tempering upbeat headline figures with more ambivalent supporting data. That skepticism is signalled by their refusal of the populist term ‘Big Six’. (‘Top Nine’ is more accurate, but just doesn’t have the same ring, somehow.) They also remind us that the UK already had 16 different electricity suppliers before liberalization. 

Of course, only one of those companies was active in the domestic subsector, so the popular account of the Thatcher-Lawson reforms breaking up a state-owned monopoly remains effectively true. But we need to remember that business consumers have reason to be cynical about the alleged dynamism of the free market. They’ve experienced decades of inertia, and lived through the spate of closures and mergers which consolidated the grip of the established players back in the noughties.


Thumbs Up

It’s therefore cheering to see the wonks apply an objective test of diversity and give a ‘thumbs up’. The measure they use is the aforementioned Herfindahl index, defined by Wikipedia as an indication of “the size of firms in relation to the industry and […] the amount of competition among them.” A low Herfindahl index is reckoned to be a Good Thing in much the same way as a blood test showing low levels of LDL cholesterol. The UK energy sector’s Herfindahl score has been declining since 2010. Hurrah! It’s now down to 1999 levels, and shows every sign of falling further in the near future. 

We’d like to think that these positive developments can be traced to the rise of renewables and the emergence of new business models. ‘Big Six’? ‘Top Nine’? Whatever you call them, their slice of the pie is 10 percent smaller, and that share is going to fresh-faced competitors. Most of the innovations are being made in the domestic subsector, granted… but, in the long run, we’ll all benefit.

Here at Planet9 Energy, we help our customers deal with the changes taking place across energy markets in the UK and Europe. Give us a ring to learn more.



Mini Nukes, Stale Rolls


The UK is power-hungry, but Rolls-Royce’s nuclear recipe du jour isn’t particularly appetising.

The global nuclear industry has woken up hungry, with small modular reactors topping its to-do list. Dozens of companies across the resurgent nuclear sector are touting SMR implementations. In the UK, Rolls-Royce is leading the charge… but, despite government support, it’s an offer that looks past its sell-by date. 

If you haven’t heard of small modular reactors yet, you will soon. They have become the nuclear industry’s hot topic de jour, an emblem of reviving confidence. They add flexibility to the sector’s longstanding promises of longevity, low emissions and predictable costs.


A Bit Of Flex

Energy flexibility is, of course, a primary concern for the developed world. We don’t face catastrophic shortages like the 1973 oil crisis. Existing energy supplies are reasonably secure, and the decades-long transition to renewables is off to a flying start. But our infrastructure wasn’t designed to cope with the unpredictable yields of solar PV and wind, so we need a ‘Plan B’.

In the UK, we like to switch on gas-powered turbines when things get tight. It’s a habit we acquired during the glory days of the North Sea bonanza. Now that gas imports are getting more expensive, however, the government has begun looking elsewhere for peak power.  

Nuclear ‘peaker’ stations never used to be an option. You can’t fuel up a giant, slow-running nuclear plant like Dungeness B to cope with the nightly ‘Coronation Street’ surge. But smaller reactors might be managed on a combined-heat-and-power basis, providing city-wide heating when they aren’t selling power to the grid. Or they might adopt tried-and-tested solutions for power storage during their ‘offline’ periods — pumping water uphill to a hydroelectric reservoir, say. 


Production Line

While operational flexibility is the unique selling proposition of the SMR, it’s not their only advantage over their bigger relatives. Giant installations like Hinkley Point have to be custom-made in response to local conditions, but SMRs could be fabricated from standardized parts, reducing development costs and build times. Many industry pundits believe that it would be cheaper and faster to commission 20 small plants than one Hinkley Point behemoth. 

Well, actually, only a few of them say ’20’. Others recommend 50, or a hundred. Since the designation ‘small modular reactor’ is essentially a marketing category, there’s no consensus on how big such plants should be, or how they should operate. The International Atomic Energy Authority has laid down dogmatically that SMRs have outputs in the range 10–300MW, which clarifies matters a little. Still, it’s quite a range… and the variety of fuel cycles, cooling and management technologies being touted by the world’s nuclear engineering companies is even wider. 

It’s enough to make you feel sorry for the government ministers who have to wade through all the bumph!


A Rosy Picture

In the UK, a clear favourite has emerged from the various mini-nuke pitches presently doing the rounds. Titled ‘SMRs: A National Endeavour’, it comes from a consortium headed by Rolls-Royce and paints a rosy picture of an SMR-enabled energy strategy. Among the stated benefits: helping the UK meet its 2050 decarbonisation commitments; providing energy security; creating 40,000 skilled jobs; and delivering a £100bn economic boost. 

How’s the bottom line? Tried-and-tested tech would generate energy for £60/MWh, a third less than the Cameron-EDF Hinkley Point strike price. And, the authors point out, Rolls-Royce has a lengthy track record. Its technology has been powering the UK’s nuclear submarines for decades, after all. 


Raising Steam

We’d expect the UK government to be well-disposed towards a company in which it used to be a major shareholder… but, in ‘A National Endeavour’, Rolls-Royce seems to be trying to re-badge an existing technology. At 450MW, the proposed reactors are oversized for the SMR designation and seem unlikely to offer much in the way of operational flexibility. (Most of the UK’s existing reactor fleet is rated at around 1200MW — only three times larger, and anything but flexible.)


Following The Money

Drax Group’s pursuit of ‘prosumers’ is naked opportunism… and that’s a good thing.


The owner/operator of the mighty Drax power station is one of the biggest business energy suppliers in the UK. You might expect to find the company sneezing every time the economy feels the cold, but fast reflexes and an eye to the main chance have enabled it to steer its own course. Now it’s venturing outside its comfort zone to stake an early claim on the emerging ‘prosumer’ class.
Financial pundits like to talk about ‘bellwether stocks’ and the insights they provide. Bellwethers are established companies whose success or failure signals that of their sectors or of the economy as a whole. 
Since energy management and use are closely linked to cycles of growth and recession, you might be inclined to seek out bellwethers among the major electricity suppliers.
But the UK energy market is a difficult environment for trendspotting. Its inception in the Thatcher boom was given extra fizz by that era’s North Sea oil and gas bonanza, while the falling demand of the last couple of decades has been offset by the Death of Coal and the availability of various subsidies. It’s hard to tell where the resulting hodge-podge is headed… but it’s easy enough to spot those players which are likely to survive. The criteria are flexibility and opportunism.

Seventh At The Table

Drax Group was formed at the turn of the century, when monopoly laws led to the divestment of the Drax power station, source of nearly eight percent of UK electricity. Ownership of a primary asset left over from the days of the state-run CEGB aligned the fledgling company more closely with the established ‘Big Six’ than its contemporaries. However, the times were a-changin’, and the fact that Drax was entirely coal-fired might easily have become a millstone round the group’s collective neck.
Fortunately for its new owners, the site had a track record as an early adopter of emissions controls. In a lightning-fast response to the anti-carbon rhetoric of Gordon Brown’s government, Drax Group leveraged that slender advantage into a full-blown carbon-capture strategy. This reached its fullest expression in the 2012 White Rose initiative, which would have seen Drax’s entire CO2 output captured and sent to the Yorkshire coast for sequestration… with funding from the EU and the UK taxpayer, naturally.

A Feint To The Left…

Had the Brown-era carbon capture initiatives not withered on the vine, this story might have finished sooner. As it was, half-hearted support from David Cameron’s government and the drying-up of promised subsidies prompted further twists. 
When the group finally decided to shelve White Rose in 2015, it was already hard at work on the massive task of converting Drax from coal to biomass. 
The core project was accompanied by two suitably huge biomass pallet supply initiatives in the UK and US… and by two high-profile lawsuits against HM Government, which had dared to question Drax’s eligibility for funding under the Contracts for Difference and Climate Change Levy subsidy schemes. (The group’s management weren’t going to miss a second chance at a contribution from the taxpayer.)
But our tale isn’t done yet.  

…And A Swerve To The Right…

Recent, apparently contradictory announcements show that Drax Group is on the move yet again.
Firstly, the company talked about building a number of gas-fired ‘peaker’ stations. A peaker is essentially a jet engine attached to an electric generator. It’s a handy resource if you think you might need large amounts of extra power at short notice… but, as you might expect, it does little for CO2 emissions.
Hard on the heels of that announcement came a second, saying that the group had purchased Opus Energy, a business energy supplier which provides SMEs with power harvested from microgeneration sites. Opus complemented Haven Power, an earlier Drax purchase which serves corporate clients on a similar ‘green energy’ model. 
How do those two items fit together? Recent communications show the group embracing the technologies which we know as the ‘smart grid‘ (distributed generation, Internet of Things-based metering, battery storage…) as it seeks to implement a ‘prosumer’ model, in which energy users are supported in switching ad lib between the roles of producer and consumer.
Wherever there’s a Drax Group announcement, there’s a subsidy… and, sure enough, a recent press statement alerts potential ‘prosumer’ customers to the ready availability of government funding for microgeneration ventures. But the same communication also references the need for flexible generation to cover winter shortfalls. 


In fact, the Drax vision for the UK’s energy future (2017 version) turns out to be a microgeneration-friendly smart grid with biomass and gas-fired generators to cover any shortfall. It’s a familiar pitch… but we’re dazzled by the former fossil-fuel giant’s quick-change act.
Here at Planet 9 Energy, we keep a close eye on the antics of business energy suppliers in the UK and EU, and we help our clients ensure they’re getting the best deals possible. Give us a ring to learn more.