T-4 Capacity Market Clears at Lowest Ever Price

The T-4 Capacity Market auction clears at lowest ever price, power and gas prices reach multi-month lows. 

Last week we saw the T-4 Capacity Auction clear at it’s lowest ever price. The auction seeks to ensure security of supply for winter 2021, and provides an outlook of our future generation mix. Gas will make up almost of half of supply when the system is tight, while the lack of coal-capacity agreements may cause more coal-plant closures in the near future. In the wholesale market, all commodity, gas and power prices moved lower. 


Gas Prices Drag Power Lower

Power and gas contracts continue to move lower. Brent crude oil reaches a new three-year high. Embedded benefits injunction rejected, Future Energy exits the market. 

Last week showed continuing downward trends in nearly all near-term power and gas contracts. Seasonal power contracts also fell with Winter 18 and Summer 18 contracts dropping to their lowest levels in three months. There had been several disruptions to GB gas supplies towards the end of 2017 which attributed to the fall in power prices. There was also very good news for consumers this week as the High Court decided to reject Ofgem’s injunction application. 


Renewables Records Set in 2017, Fresh Highs for Power Prices

2017 sees a host of new records for renewable generation. Near-term prices fall, seasonal contracts hit fresh highs. 

Despite it being the New Year, the energy market continued some of the trends we saw towards the end of 2017: near-term gas and power contracts decreased, while seasonal contracts moved higher. Day-ahead power fell by 8.8% in the last two weeks of the year, while last week, Winter 18 reached its highest price since September 2015. Unrest in Iran meant that Brent Crude oil was the most expensive it’s been since May 2015. 


Outages & Incidents Cause Price Spike

Unplanned shutdown of major oil pipeline and other incidents send power and gas contracts shooting upwards. 

It was a very eventful week last week, with a cracked gas pipeline off the North Sea and an explosion at the main gas hub pipeline in Austria. Since the UK transports so much gas through these pipelines, the effects were felt right across the gas and power market. Day-ahead power averaged £63.5/MWh on Tuesday, while day-ahead gas reached a four-year high of 78.0 pence per therm. Outside of the wholesale market, Elexon announced that transmission charges will vary depending on location and season from April onwards. 


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.


Bloomberg’s Energy Highlights


How should your company position itself for change in the energy industry?

Bloomberg’s invite-only conferences are a useful indicator of the energy industry’s prevailing mood. Last year’s meeting was an optimistic affair which showed how Europe’s enthusiasm for electric vehicles was beginning to register with providers. This year’s get-together was less upbeat, dominated as it was by concerns about shifts in the generating mix, and their implications for the roles of the utility companies. 

Speaker after speaker at Bloomberg’s New Energy Finance conference offered perspectives and solutions, providing plenty for the alert business customer to chew over. A particularly toothsome morsel concerned the cut-throat competition in the renewables sector. Like most industry junkets, these conferences are wide-ranging but generally polite, so it was a shock to hear Irene Rummelhoff of Statoil use her time at the podium to lambast sections of the wind farm industry. 

“The offshore wind industry needs to be careful,” she said. “If they’re not able to build the projects, it will ruin [their] reputation.”



Ms. Rummelhoff was referring to initiatives by Energie Baden-Wuerttemberg and Dong Energy, who upset their peers earlier this year by contracting to deliver cheap wind energy to German consumers *without* the support of green taxes, levies or subsidies. Dong has made similar undertakings in relation to new UK ventures, where it promised prices as low as £57.50/MWhr. 

Compare that with the notoriously steep £92.50 strike price agreed for Hinkley Point output! Whatever is going on?

The reason the EnBW and Dong offers ruffled feathers is that some are skeptical these projects will ever become a reality. Allan Baker of Societe Generale blandly dismissed them as “an option on future capacity.” It was left to Francesco Starace of Italy’s Enel SpA to spell out the kind of gamesmanship in which his competitors were indulging. “You need to have a diversified portfolio, you need to be able to say: No, I don’t like this project, I have another three coming,” he commented. “If you only have one project and that project is everything you need for growth, that is not a good thing.” 

In other words, those particular wind farms may not get built… but try not to let it bother you. They’re still having a positive impact.


Margin: zero

Sig. Starace’s brisk analysis would fit any situation where businesses compete in the absence of decisive technical or financial advantage. But in the context of the London conference, it’s remarkable… because it demonstrates just how thoroughly renewables have entered the mainstream. The same economies of scale which saw solar panels going head-to-head with gas turbines on price-performance ratio are now having a similar impact on wind energy. The cheapest solar and wind contracts may never be realized, but their collective effect is to drive down prices.

“[It’s] the slowest trainwreck in history,” commented Steven Martin of General Electric, in a separate but closely-related discussion. “We’re going to reach some point where the marginal cost of energy is zero.”


All about the base(load)?

Of course, the prospect of a smart grid delivering bountiful free energy is very appealing… provided you *don’t* run a utility company! Mr. Martin and his peers presumably heaved a collective sigh of relief when they realized that the necessary changes to our infrastructure will have to take place in piecemeal fashion, as investment gets diverted from existing forms of generation and distribution.

Indeed, some of Europe’s utilities are likely to enjoy something of a heyday in the immediate future. Bloomberg’s own Jonas Rooze showed why, despite the rapid growth of renewables over the next 15 years, there’ll still be a requirement for fossil fuel ‘despatchables’ like gas turbines. But he also foresaw a breakdown in the prevailing distinction between ‘baseload’ and ‘peaker’ generation. In the near future, local renewables will do the grunt work, with centralized despatchables coming online only when required. That’s a near-inversion of the existing model, and it’s bound to produce winners and losers.

Your business will need new and more flexible energy buying strategies to cope with these conditions… and that’s where we come in. At Planet9 Energy, we help our customers deal with the momentous changes in Europe’s energy markets. Give us a ring to learn more.





Mexico’s cap-and-trade model works with businesses to cut carbon emissions

Mexico has come out on top in the innovation stakes, with a new cap and trade system for dealing with carbon emissions. As a nation that passed the first climate law in the developing world back in 2012, it seems Mexico is becoming somewhat of a poster child for the move away from fossil fuels.


Easing into it

The cap and trade system comes from a rocky start, when subsidies for carbon-based fuels were phased out, and consumers were met with a 20 per cent rise in gasoline prices. Chaos ensued as people staged protests and set fire to vehicles, making it apparent that the shift from carbon-based fuels over to renewables must be a gradual one.

From this, the cap-and-trade system was born. The idea? Companies are provided with permits from regulators allowing them to pollute only a certain amount – their “cap”. The cap typically decreases over time, presenting the company with a choice: stop polluting, or buy permits from other companies – their “trade”.

Business decisions

It is inevitable that some businesses will exceed their cap in the early stages, and will decide to buy additional permits on the stock market. Naturally, this is discouraged and misses the point of the system.

There are great cash flow incentives, too. Companies whose emissions sit below their cap can act as independent business energy suppliers by selling their excess allowance on to other companies. MEXICO2, an organisation that exists within the Mexico Stock Exchange, have also developed sophisticated software to help companies get to grips with the logistics of carbon trading.

More than 80 companies have already signed up to simulate permit trading and the federal government will make participation mandatory for all the country’s biggest emitters by the end of 2018. As a nation with a huge amount of polluting industries, it’s a big step.

Mexico has also set a cooperation agreement with California, which has been trading carbon permits with Canada for a number of years. The North America experience has highlighted that polluters want increased transparency – not only set emissions quantities but also a forecast for permit prices.


Going all in

Mexico is unafraid to set the bar high with their emissions reductions, committing to a 22 per cent reduction in greenhouse gases by 2030 under the Paris climate agreement. They have also pledged to generate 50 per cent of their energy from clean sources by 2025.

In a country where oil production is major business, you have to tip your hat to their commitment to reduce oil dependence, with major budget cuts in the dominant, state-run petroleum company Pemex.

Major constitutional reforms have allowed for private investment into electricity, including extraction, storage and commercialisation – this offers even greater opportunities for companies to expand their own energy horizons.

Although there’s still a need for major private investment into the energy sector, the cap-and-trade system off to a flourishing start. It also provides a shining example to other countries, of how to work with businesses to tackle the issue of climate change.

electric vehicle

Electric Vehicles are Driving our Future


Rising demand for electric vehicles fuels the renewable revolution

Bob Dylan was right – the times they are a-changin’. Oil has come to a halt on the hard shoulder and electric vehicles have taken its place in the fast lane. Even the world’s biggest oil producers can no longer ignore the impacts of EVs because they are not a passing fad – they are driving towards the future at a rapid pace with no signs of slowing down anytime soon.


Is EV takeover imminent?

Industry bigwigs are adapting their outlook as forecasts paint renewables in a very positive light. OPEC has quintupled its forecast for sales of plug-in EVs and predictions suggest that the impact will reduce oil demand eight million barrels by 2040. The future of the multi-billions currently invested into fossil fuels hangs precariously in the balance, uncertain of its next steps.

As EV popularity continues to grow, it is settling firmly into place in the global auto fleet. Automakers, oil companies, and electric utilities are just some of the areas set to take a hit with the toppling demand for oil. Indeed, the length of time that experts believe EV adoption will take is rapidly decreasing. Demand is high and the change is now.


New EV models set a fast industry pace

Bloomberg New Energy Finance predicts that EVs will outsell gasoline and diesel models by 2040 to make up a third of the global car fleet. The Organization of Petroleum Exporting Countries has increased it’s 2040 EV fleet prediction from 46 million to 266 million – the original predictions were made just 12 months ago. BP has also increased their outlook by 40 per cent to predict 100 million EVs on the road by 2035. There is certainly a theme here and it’s not looking good for oil.

While progress to date has been fairly steady, EVs are now picking up the pace like nobody’s business. Government policy decisions on air pollution and the cost of lithium-ion batteries are just two of several factors that may impact the development and long-term growth of EVs.

However, most major carmakers including Elon Musk’s formidable Tesla are bringing new EV models to market in their droves. Volvo AB are predicting an electric motor for every car in their fleet by 2019. These combined efforts will likely lead to impressive EV market acceleration and current reports suggest that oil demand in Asia may take a hit as soon as 2018.


Wave Goodbye to Oil

But it’s not only the auto industry that looks set to displace oil in favour of renewables. Solar power is fast overtaking oil in terms of employment opportunities – in fact, in the US the solar industry employs more people than the oil, coal and gas industries combined.

This tallies with an increased demand for solar with both businesses and consumers choosing options such as solar panels alongside their fuel-efficient vehicles to do their bit for our smart energy future. Efficient energy management is now very much in the public conscience and people are taking action.

Wind power is another key player in energy efficiency while smart grids are slowly phasing out fossil fuel-focused alternatives. We’d like to refer here to renowned energy academic and Oxford economics professor Dieter Helm – a Planet9 favourite and one of the biggest voices in the “oil is out” argument.

In an earlier blog, Time to say goodbye, Planet9 talked about his views that the oil industry burnout is irrevocable and imminent – that the renewable energy revolution is here, and fossil fuels are out. As a highly respected industry expert, Helm is not one to make bold statements without the evidence to back it up. As the advent of EVs and the displacement of oil just continues to rise, we can only say that he has been proved right once again. And we’re very happy about it, too.




Last Tango in Paris

The impact of Trump’s decision to leave the Paris Agreement


Donald Trump has certainly not held back on fulfilling his campaign promises and his decision for the US to leave the Paris Agreement is just the latest in a string of controversial moves. With all the fake news and media outcry surrounding this decision, we decided it was high time to set the record straight and separate facts from fiction.


It’s Not Yet Time to Go

While it is fairly disheartening to see one of the world’s superpowers and the second largest emitter of greenhouse gases back out of the global effort to prevent climate disaster and power sustainably towards a smart energy future, perhaps all is not lost. A key fact is that it’s not all quite as scaremongering as the media would like us to think. No nation is permitted to leave the agreement until three years after it was enforced.

That means Trump cannot even hand in his notice until November 2019, by which time there may well have been some significant peaks and troughs on Trump roller coaster. It’s also worth noting that a country is permitted to leave the agreement one year after it lodges its formal letter of intent, which would mean the US leaving the day after the 2020 Presidential election. If a pro-Paris candidate is nominated in his place, then the nation will never have left at all.

Of course, Trump is known for being rash. He could just go for a unilateral pull out without any regard for procedure but this may mean future Presidents in favour of the agreement will argue this decision was invalid and reverse it.  He may argue that the Agreement needs to be ratified by the Senate, and go down that route but there have not been any clear indications of this route thus far.

An Irrational Decision

The key question here is why does Trump really want to leave? Well, he believes that the US deserves a fairer deal and one that puts them first. He thinks that the agreement disadvantages the US to the benefit of other countries, allegedly resulting in increased costs for taxpayers, job losses and factory closures.

He also believes the agreement “endangers America’s capacity for self-government” but the US has strong global muscles to flex and this argument could be applied just as much to any other agreement. Another of his arguments takes a similar narcissistic route in that the US cannot pursue their growth energy agenda as the agreement makes fossil fuels more expensive. While this is obviously a bid to protect domestic US coal production, it’s also misinformation. The agreement is designed to increase energy efficiency by making all forms of energy cheaper with the creation of a thriving global market.

Making Up the Shortfall

But nothing is set in stone. Trump has already stated that he is prepared to renegotiate going back in on the agreement if there are “terms more favourable to the United States.” But exactly what he wants to discuss is anyone’s guess.

He has not made any clear objections to the legally binding clauses. The US has the freedom to set and amend their own emission targets. Trump has also announced that he will not make any remaining payments towards the nationally determined contribution and green climate fund as it “costs the US a vast fortune”. Therefore, the US has no more set contributions that he must honour.

At this point, we would like to thank Barack Obama for his foresight. The former President transferred $500 million to the Green Climate Fund before leaving office. This is as a final instalment of the $3 billion total pledge from the US to help the poorer nations clean up their economies and protect against climate change.

It’s also worth noting that while Trump has not provided any details on how and when the US will leave the agreement, he has also failed to acknowledge that the Paris Agreement legally “cannot be renegotiated based on the request of a single Party.” It’s almost like sitting in the boardroom ready for a fight when no one else even plans to show up. 

A Strong Road to Clean Energy

So, there is a lack of procedure, a lack of clarity and a lack of any certainty about the how and why of the US plans to leave the agreement. With the current US emission reductions pledge counting for 20% of 2030 targets, their departure means that other nations will have to make up the shortfalls in emissions cuts. This may lead other countries to abandon the agreement altogether but this is looking at the situation at its most drastic.

But we do know that if the US departure takes place, it will not cause too much of a stumbling block in the fight against climate change. Cities, corporations and investors have all been making a steady transition towards a cleaner economy for many years and renewable’s are now a great contender against fossil fuels. The transition will continue and the main impact will actually be felt in the US itself where diplomatic influence may well take a hit. What’s more, many US businesses will likely choose to remain on track to fulfill their own emissions targets and personal pledge towards a cleaner energy management system.

Trump may have the loudest voice in the US but he certainly does not speak for everyone. Surveys show that the majority in nearly every state support staying in the Agreement and that nearly twice as many Trump supporters back the agreement as oppose it. Even major oil and coal companies in the US have spoken out to support the agreement. The world and the Paris Agreement will rein on – and it simply remains to be seen which way Trump chooses to go.


The Road Not Taken

Denmark just passed a smart energy milestone. Is the UK following?

It’s an ill wind, as they say. Recent stormy weather helped boost wind generation at sites across Europe. Denmark’s offshore farms reported a particularly good month, culminating in a 97GWh bonanza on February 22 when the electricity suppliers’ collective output exceeded the country’s total power requirement. Way to go!

When wind power advocates seek to persuade other European nations to follow Denmark’s example, they usually begin with an acknowledgment that the Danish project has benefitted from two important advantages. The country has a long exposed coastline with shallow offshore waters that are ideal for windfarming, and can boast a tradition of excellence in windmill engineering that is traceable to the 19th century polymath Poul la Cour.

While these considerations are undeniably important, we should also take into account other, more prosaic factors. For a clue as to what those might be, look to a rosy pronouncement on Denmark’s February milestone from Europe’s wind lobby. “It demonstrates … that renewables can truly be a solution to Europe’s needs,” said WindEurope spokesman Oliver Joy, going on to list less viscerally impressive results from other community members including Germany, Portugal… and, as we’ll see later, the UK.

Mr. Joy’s choice of examples is telling. Denmark’s consumers have long been accustomed to paying the highest electricity prices in the EU. Germany is a close runner-up, and Portugal, too, is ‘top five’. To put those rankings into perspective: Danish and German households pay around three times as much for their power as the bottom-of-the-table Bulgarians.

Blowing hot and cold

It’s dangerous to rely on generalizations, but we might suggest a correlation between high energy prices and a particular species of government high-mindedness. Thus, Germany’s painful energy bills are symptomatic of its struggles with a serious carbon addiction. The Danish case is similar, but more complex.

The Danish government has steadily pursued a renewables-heavy power mix since the early 1980s, spurred on both by green visions of self-sufficiency and anti-nuke sentiments. The February milestone was no flash in the pan. The country already generates around 45 percent of its electricity from the wind, and looks set to increase that proportion to 50 percent by 2020.

However, those impressive statistics came at a price. The Danish wind energy renaissance was built on the country’s Public Service Obligation (the clue is in the name). The PSO was a longstanding 11 percent government surcharge on energy bills. Until the levy was finally quashed by the European Commission in 2014, PSO revenues were used solely to finance green initiatives. The single largest beneficiary of this massive windfall was DONG Energy, formerly Dansk Olie og Naturgas, which used PSO income to fund its diversification from fossil fuels into renewables.

Viewed in these terms, the Danish outfit starts to bear an odd resemblance to France’s EDF. Both companies built their particular expertise — in wind and nuclear energy respectively — on decades of public subsidy. And both remain firmly under the control of their national governments.

Such musings return us to the last of Mr. Joy’s success stories, that of the UK. Do we belong among such exalted company? You might be surprised to learn that the UK surpassed Denmark in wind generation nearly a decade ago, and that we’ve since managed to build up the largest offshore generating capacity in the world… without government-sponsored price gouging.

Of course, our commitment to private enterprise also means that, unlike Denmark and France, Britain doesn’t actually own those resources. If the government has kept quiet about our wind power successes, perhaps it doesn’t want to dwell on the way that the UK’s liberalized energy regime benefits the state-controlled enterprises of other EU nations? Here at Planet 9, we keep a close eye on the energy markets of the UK and Europe, and we help our customers to benefit from what we see. Give us a ring to learn more.