Weekly UK Insight - 29 May 2018

Gas

p/therm 18 May 18 25 May 18 Change
Day-Ahead (DA) 56.20 55.20 -1.8%
Jun 2018 55.46 55.17 -0.5%
Q3-2018 56.28 56.07 -0.4%
Winter 2018/19 63.50 63.50 0.0%
Summer 2019 50.10 48.39 -3.4%

Source: Reuters

The UK’s Day-Ahead gas price slid 1.8% to 55.20 p/therm as unplanned maintenance at the UK Continental Shelf’s Barrow North terminal came to an end with pipeline flows returning to 7 mcm/d.

Norwegian gas terminals Kollsnes and Troll were fully shut down for maintenance yesterday. Kollsnes capacity is reduced by 40 mcm/d, hindering Langeled flows, but should return to normal operations on 1 July.

LNG tanker British Sapphire is heading to the Isle of Grain on 2 June. There is a sufficient spare capacity to accommodate this cargo and the terminal operator is not forecasting send-out from the terminal in June. LNG send-out from South Hook is continuing at minimum of 5 mcm/d.

Forward prices for Winter 2018/19 were completely unchanged week-on-week.

However, prices further out for Summer 2019 fell 3.4% tracking bearish crude oil and coal markets.

Russian state gas giant Gazprom has signed a protocol with the Turkish government on a planned gas pipeline and agreed with Turkish firm Botaş to end an arbitration dispute over the terms of gas supplies. The protocol meant that work to implement the 31.5 bcm p.a. TurkStream pipeline could now begin.

Turkey had delayed issuing a permit for the Russian company to start building the land-based parts of the pipeline which, if completed, would allow Moscow to reduce its reliance on Ukraine as a transit route for its gas supplies to Europe.

UK NBP

Weekly UK Insight 29 May 2018
Source: Reuters

Power

£/MWh 18 May 18 25 May 18 Change
Day-Ahead (DA) 54.25 60.17 10.9%
Jun 2018 54.62 54.33 -0.5%
Q3-2018 55.37 55.17 -0.4%
Winter 2018/19 60.88 60.90 0.0%
Summer 2019 50.41 49.18 -2.4%

Source: Reuters

Day-Ahead power prices rose 10.9% last week to £60.17/MWh, reflecting a higher cost of spot carbon and lower wind speeds, boosting the demand for power generation power from more expensive fossil fuels.

Winter 2018/19 power prices were unchanged week-on-week. Though Summer 2019 power prices dipped 2.4%, tracking the equivalent forward gas prices as crude oil declined.

UK POWER BASELOAD

Weekly UK Insight 29 May 2018
Source: Reuters

Oil

$/bbl 18 May 18 25 May 18 Change
Brent Crude Jul 18 78.51 76.44 -2.6%

Source: Reuters

Brent crude oil prices fell 2.6% to $76.44/bbl, reflecting expectations that Saudi Arabia and Russia would increase crude production to ease a potential shortfall in supply.

Saudi Arabia and Russia have discussed raising OPEC and non-OPEC oil output by approximately 1 million bpd to make up potential supply shortfalls from Venezuela and Iran. OPEC is scheduled to meet in Vienna on June 22.

U.S. oil production has increased by more than 27% in the last two years to 10.73 million bpd. That puts the United States ahead of top exporter Saudi Arabia, and only Russia pumps out more, at around 11 million bpd.

BRENT CRUDE OIL – MONTH-AHEAD

Weekly UK Insight 29 May 2018
Source: Reuters

Exchange Rates & Economics

£/$ 18 May 18 25 May 18 Change
GBP/USD 1.3471 1.3307 -1.2%

Source: Reuters

The Pound Sterling fell in value versus the U.S. Dollar as the Office for National Statistics confirmed its previous estimate that GDP growth dipped to 0.1% in Q1-2018. However, there has been some debate as to how much of this slowdown was the result of the “best from the east” or other factors.

The decline represented the weakest household spending for three years and falling levels of business investment.

Much will now hinge on how consumers fare over the coming months, with some early indications there could be a rebound in stronger retail sales data for April.

EXCHANGE RATE – GBP/USD (£/$)

Weekly UK Insight 29 May 2018
Source: Reuters

Regulatory and Market News

Energy UK proposes changes to Capacity Market and Contracts for Difference auctions

As the government reviews the Electricity Market Reform (EMR) programme, and its success in delivering low carbon, affordable energy, Energy UK – which represents over 100 suppliers, generators and other participants in the sector – is setting out how EMR can bring even greater benefits for consumers and the UK economy in future.

In its vision paper published today, Energy UK emphasises its continuing support for the programme’s two major elements – the Contracts for Difference (CfD) and Capacity Market (CM) auctions – but makes a number of recommendations to ensure they remain fit for purpose in future by providing a level playing field for all participants and technologies and enabling investment at lowest cost.

The vision paper makes a number of recommendations including that:

  • There should be a revenue stabilisation CfD to reflect substantial cost reductions in a number of low carbon technologies;
  • There needs to be greater clarity on timing and rules for future CfD auctions in order to help generators develop supply chains and plan more effectively for future investment;
  • The Capacity Market should allow renewables to participate in future and should also look to see how innovative new models such as hybrid (those with multiple technologies) and aggregated sites can take part; and
  • The Capacity Market rules and governance, including penalties and fees, should be reviewed to ensure they remain fit for purpose.

By drastically reducing costs and incentivising billions of pounds of investments, the EMR policy has driven growth and established the UK as an international leader in the technologies involved. The latest CfD auction in September 2017 saw the cost of offshore wind projects nearly halved whilst the latest Capacity Market auction resulted in the lowest clearing price ever.

Lawrence Slade, chief executive of Energy UK, said:

“EMR has been a success story and shows that with the right framework and incentives, low carbon energy can be delivered at an ever-reducing cost to customers, whilst ensuring we keep the lights on.

LINK: Energy UK – changes to energy auctions

Energiekontor signs PPA on UK’s first subsidy-free wind project

German renewables developer Energiekontor has announced the signing of a long-term power purchase agreement (PPA) on an 8.2MW onshore wind project in Yorkshire.

The project represents a major milestone for the UK onshore wind energy market, which had faced a development hiatus over the past year following the government’s decision to block onshore projects from competing for clean energy price support contracts.

The company believes that it is the first windfarm project in the UK to proceed without government subsidies. The Withernwick II scheme is an extension to the Withernwick I windfarm and will add four 2.05MW turbines to the existing facility. Withernwick II is set for commissioning by the first quarter of 2019.

CEO of Energiekontor AG, Peter Szabo said: “The financial close for the Withernwick II project shows that our efficiency measures to reduce costs are indeed bearing fruit and that we are already able to implement a wind farm profitably at pure market conditions.”

A number of other PPA-backed onshore wind and solar projects are understood to be in the pipeline and the trend has been broadly welcomed by the government, which has cited it as evidence that renewables can now be developed without recourse to subsidy support.

LINK: Energiekontor – Withernwick extension

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