Weekly UK Insight - 19 August 2019

Gas

p/therm 9 Aug 19 16 Aug 19 Change
Day-Ahead (DA) 28.85 26.05 -9.7%
Sep 2019 33.99 30.48 -10.3%
Winter 2019/20 50.38 48.19 -4.4%
Summer 2020 45.50 44.39 -2.4%

Source: Reuters

The UK’s Day-Ahead gas price slid 9.7% to 26.05 p/therm as a ramp up in Norwegian pipeline flows to the UK left the UK gas system around 27 mcm/d oversupplied.

There is currently an unplanned outage at the Barrow gas import terminal. However, plentiful imports from other UK Continental Shelf supplies means that the UK remains in injection mode, filling its storage facilities.

Rough storage is expected to remain offline until October, when colder weather is expected to drive spot prices a little higher.

LNG send-out from Britain’s terminals declined to 8 mcm/d, making space for two new LNG tanker deliveries expected to arrive in Britain over the next two weeks.

A slump in the Dutch TTF spot gas price was also particularly bearish for UK day-ahead prices, as stronger wind output reduced the demand for gas to be used in power production.

Winter 2019/20 gas prices fell 4.4% lower week-on-week to 48.19 p/therm, as ongoing injections into gas storage means that stockpiles across the EU region has now reached 88% of capacity. Last year, gas stockpiles didn’t reach this level until mid-October.

Despite substantial excess LNG import capacity, Europe is investing in new LNG terminals as it looks to phase out coal-fired plants and nuclear power in favour of renewable energy and gas. Germany, Europe’s largest gas importer, has shifted its policy and plans to import LNG directly, diversifying its energy sources and strengthening its energy security.

UK NBP

Weekly UK Insight 19 August 2019
Source: Reuters

Power

£/MWh 9 Aug 19 16 Aug 19 Change
Day-Ahead (DA) 34.19 27.86 -18.5%
Sep 2019 44.78 41.56 -7.2%
Winter 2019/20 55.49 53.42 -3.7%
Summer 2020 49.69 48.43 -2.5%

Source: Reuters

Day-Ahead power prices plunged 18.5% to £27.86/MWh, reflecting the lower cost of spot gas and higher wind generation across both the UK and Northwest Europe.

Winter 2019/20 power prices lost 3.7% to £53.42/MWh, reflecting lower prices for UK gas, coal, carbon and European forward power prices.

National Grid’s preliminary investigation into the blackout that caused widespread disruption in Britain on 9th Aug has raised the possibility that it was caused by the world’s largest offshore wind farm accidentally going offline.

The provisional report, which was submitted to regulators, may suggest for the first time that the Hornsea offshore wind farm may have tripped offline seconds before an outage at a smaller, gas-fired station.

UK POWER BASELOAD

Weekly UK Insight 19 August 2019
Source: Reuters

Oil

$/bbl 9 Aug 19 16 Aug 19 Change
Brent Crude Oct 19 58.53 58.64 0.2%

Source: Reuters

Brent crude oil prices recorded a small gain of 0.2% week-on-week to $58.64/bbl, alongside equities as expectations of further stimulus by central banks helped to ease recession concerns.

However, oil’s gains were capped after the Organization of the Petroleum Exporting Countries trimmed its global oil demand forecast in a downbeat outlook for the rest of 2019 as economic growth slows. The cartel also highlighted challenges in 2020 as rivals pump more, building a case to keep up an OPEC-led pact to restrain supplies.

Also capping oil’s gains, U.S. energy firms increased the number of oil rigs operating for the first time in seven weeks. The oil rig count, an early indicator of future output, has declined over the past eight months.

BRENT CRUDE OIL – MONTH-AHEAD

Weekly UK Insight 19 August 2019
Source: Reuters

Exchange Rates & Economics

£/$ 9 Aug 19 16 Aug 19 Change
GBP/USD 1.2034 1.2149 1.0%

Source: Reuters

The Pound Sterling rose in value versus both the US dollar and euro as UK inflation data was better than expected. A rise of 2.1% in the annual CPI inflation rate has lifted the British pound higher against its major counterparts.

The rise in prices certainly shows strength in the British economy. However, overshadowing Brexit uncertainties have tied the hands of policymakers. As such, tightening of monetary policy does not appear to be an option, even with inflation at these levels.

Boris Johnson is expected to make a diplomatic trip to meet Emmanuel Macron in Paris and Angela Merkel in Berlin early next week as he seeks to break the impasse in Brexit negotiations.

EXCHANGE RATE – GBP/USD (£/$)

Weekly UK Insight 19 August 2019
Source: Reuters

Regulatory and Market News

Judicial review lodged against exclusion of onshore wind from Government CfD energy auctions

Renewables firm, Banks Renewables, is behind judicial review proceedings against the ongoing third allocation round of the UK’s Contracts for Difference (CfD) price support regime.

Banks said it is challenging the legality of the basis on which the UK government operates its main mechanism for supporting low-carbon electricity generation.

The company believes the exclusion of consented onshore wind farms from the CfD process is “against the public interest, prevents consumers from benefiting from the lower energy prices that would result from their inclusion and, from a legal perspective, does not comply with either EU or UK law”.

Banks has three operational onshore wind farms backed by CfDs won in the first auction in 2015: the 88.4MW Kype Muir and 51MW Middle Muir in South Lanarkshire, and the 12MW Moor House in Darlington. However, onshore wind was barred from participating in CfD auctions in the second and third allocation rounds.

Banks Renewables managing director Richard Dunkley said the legal challenge is a last resort.

“We hope it will be resolved as quickly as possible, but we firmly believe that changes are required to ensure the UK government complies with its legal obligations and to end the needless prejudice within the CfD process against the most cost-effective and popular form of renewable energy generation,” he said.

Onshore wind’s exclusion “flies in the face” of UK government principles in the Clean Growth Strategy to meet domestic energy needs at lowest cost and maximise benefits for the nation, he added.

“UK Government policy is expressly to make CfD support available to offshore wind but not to onshore wind, a position which it presently intends should endure. This policy will in particular frustrate the Scottish Government’s drive towards encouraging the further development of onshore wind projects within Scotland.”

The legal challenge led BEIS and CfD partners the National Grid Electricity Market Reform Delivery Body and Low Carbon Contracts Company to extend the current sealed bid process by two weeks to 29 August.

The earliest date for publication of the auction results is currently 19-20 September.

However, Banks’ hearing will not be listed until it is given a date by a judge. Legal sources said the hearing date may not be until early October at the earliest due to the summer court vacation that finishes on 1 October.

LINK: Banks Renewables – CfD appeal

Ofgem selects EDF Energy to take on 500 business customers after collapse of Solarplicity

Ofgem has appointed Big Six company EDF Energy to take on the customers of recently collapsed supplier Solarplicity. It comes after the regulator announced the small energy supplier ceased to trade earlier this week.

Solarplicity’s 7,500 domestic customers and 500 business customers will be transferred to EDF Energy, which will ensure all outstanding credit balances are honoured.

Energy supplies will continue as normal as customers are switched over and they will be contacted directly to inform them of the next steps once their accounts have been set up.

Customers are encouraged to take a meter reading and not switch to a different supplier yet.

A spokesperson from EDF Energy said: “We are pleased to be able to step in to support the customers of Solarplicity, who will have been concerned to hear that their existing has stopped trading. They should feel reassured that with EDF Energy, they will be moving to an experienced and reliable supplier, with a good track record for customer service.

Solarplicity denied speculation that it sold off its “valuable” accounts to Toto in July, leaving Ofgem’s supplier of last resort to cover customers with credit balances.

LINK: Ofgem – Solarplicity cease trading

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