Weekly UK Insight - 08 August 2016

Gas

p/therm 29 Jul 16 05 Aug 16 Change
Day-Ahead (DA) 34.53 33.23 -3.8%
September 16 36.62 34.11 -6.9%
Winter 16/17 44.06 42.13 -4.4%
Summer 17 39.26 37.46 -4.6%

Source: Reuters

Seasonal gas prices fell around 4.5%, with Winter 2016/17 ending the week down at 42.13 p/therm, as the market digested the impact of Rough Storage’s well-availability, published on Thursday. However, gains in oil and weaker sterling exchange rates limited loses in seasonal gas prices.

Maintenance at Rough Storage will see withdrawals reduced from 42 mcm/d to 6 mcm/d, if only four wells are available, making gas supplies out of storage tight during winter months. However, previous news from Centrica left the possibility open that no withdrawals could have been available at all this winter, so 6 mcm/d is higher than some expectations.

The gas network began the week oversupplied, as Norwegian imports through the Langeled and Vesterled pipelines helped to drive prices lower across the gas curve.

Domestic gas demand used in water heating was broadly steady week-on-week, as daily temperatures last week average 16.5°C. Next week, temperatures are expected to average below normal levels. While steady wind speeds are forecast to limit gas demand for power generation.

Our outlook for the coming week suggests prices could be supported by heavy maintenance across the UK Continental Shelf gas network – predicted to last until 20 August.

UK NBP

Weekly UK Insight 8 August 2016
Source: Reuters

UK TEMPERATURE FORECAST

Weekly UK Insight 8 August 2016
Source: Reuters

TOTAL UK GAS STORAGE

Weekly UK Insight 8 August 2016
Source: Reuters

DAILY UK LNG SEND OUT

Weekly UK Insight 8 August 2016
Source: Reuters
LNG Tanker Regas volume (mcm) Expected Arrival Date From Port
None scheduled n/a n/a n/a n/a

Power

£/MWh 29 Jul 16 05 Aug 16 Change
Day-Ahead (DA) 39.75 36.50 -8.2%
September 16 40.10 38.63 -3.7%
Winter 16/17 46.56 45.38 -2.5%
Summer 17 39.73 38.43 -3.3%

Source: Reuters

Seasonal power prices for Winter 2016/17 dipped 2.5%, settling at £45.38/MWh on Friday, as the front season took direction from the corresponding gas market. Despite gas declines, losses in seasonal power prices were limited by strong gains in the markets for coal and carbon allowances.

Hinkley Point B went offline in an unplanned outage, although the 505MW nuclear unit is expected to return to service this week. Hartlepool 2 and Hunterston B-7 both remain offline for maintenance, reducing nuclear capacity by around 1.1GW, however both units are on schedule to return to full service in the coming weeks.

Danish windfarm developer Dong Energy said that UK investment in wind turbines and offshore farms can power Britain without the need for the Hinkley Point C’s nuclear station. However, further investment in intermittent renewables would need to see a growth in battery storage technologies.

UK POWER BASELOAD

Weekly UK Insight 8 August 2016
Source: Reuters

Oil

$/bbl 29 Jul 16 05 Aug 16 Change
Brent Crude Oct 16 42.46 44.27 4.3%

Source: Reuters

Brent Crude rose 4.3% higher to $44.27/bbl last week, as an unexpected 3.3 million barrels drop in US gasoline inventories indicated a brief squeeze in global oil supplies. Oil markets also rose in response to increased buying activity from speculative traders who looked to hedge their bets in the face of price volatility.

The crude price increase came despite OPEC reporting crude production is estimated to have risen to record levels during July. Last month’s cumulative output stood at 33.41 million bpd, with the bulk of the increase originating from Iraq and Nigeria.

BRENT CRUDE OIL – MONTH-AHEAD

Weekly UK Insight 8 August 2016
Source: Reuters

Coal

$/tonne 29 Jul 16 05 Aug 16 Change
API2 CIF ARA 2017 61.20 56.30 -8.0%

Source: Reuters

European coal prices fell 8.0% week-on-week, as ample stocks of coal at European power plants and adverse weather conditions resulted in weaker global demand. According to new price forecasts by Bloomberg, coal for delivery in Europe in 2017 will fall about 11% by December.

According to Department of Business, Energy and Industrial Strategy statistics, coal supplied just 22% of the UK’s power mix in 2015, down from 30% in 2014. The UK wants to phase out coal-fired power stations by 2025, as part of efforts to tackle climate change.

COAL – API2 CIF ARA 2017

Weekly UK Insight 8 August 2016
Source: Reuters

Carbon

/tonne 29 Jul 16 05 Aug 16 Change
EUA Dec 16 4.47 4.75 6.3%

Source: Reuters

European carbon prices settled 6.3% higher last week, as strong auction results, rising crude oil markets and tumbling coal prices drove the cost of carbon allowances higher. Auction volumes will be significantly lower throughout August due to the expected reduced demand over the holiday season, a period which can spur increased buying interest.

Falling European coal prices have made it more profitable to burn coal for power generation, increasing the demand from utilities buying carbon allowances.

CARBON ALLOWANCES – EUA DEC-2016

Weekly UK Insight 8 August 2016
Source: Reuters

Exchange Rates & Economics

£/$ 29 Jul 16 05 Aug 16 Change
GBP/USD 1.3226 1.3068 -1.2%

Source: Reuters

The value of the pound ended the week 1.2% lower compared to the US dollar, as the Bank of England cut interest rates for the first time since 2009. Policymakers voted unanimously to cut rates to 0.25%, from a previous record low of 0.5%.

Mark Carney, the Governor of the BoE, said the “markedly” weaker growth outlook warranted “stimulus now”. The BoE also announced a £170bn package of additional measures designed to stimulate Britain’s economy following the vote to leave the EU.

EXCHANGE RATE – GBP/USD (£/$)

Weekly UK Insight 8 August 2016
Source: Reuters

Regulatory and Market News

Nuclear is not only new energy option, says windfarm developer following unexpected Hinkley delay

Dong Energy, the biggest offshore windfarm developer in Britain has said the UK has other options to meet its future energy commitments, without the delayed Hinkley Point C nuclear project.

Henrik Poulsen, chief executive of the Danish energy generation firm, said wind turbines could be built on time and on budget, giving the UK a reliable source of power if combined with output from new biomass or gas-fired plants.

Poulsen said it was up to the government to decide whether Hinkley Point finally went ahead but he believed renewable energy was a good option, due to low prices in the industry. But as intermittent wind generation is reliant on the weather, it does not offer a flexible solution to meet baseload power demand.

The emerging answer is to build more battery energy storage, so we can store surplus renewable energy during times of peak production for use during times of high demand. Battery storage could also help reduce compensation payments by easing the flow of electricity into the system.

LINK: Guardian interview with Dong Energy CEO

First solar farm with contracts for difference contract connected to the electricity grid

Charity Farm, a solar farm in Shropshire, last week become the first solar project in the UK with a contract for difference (CfD) to be connected to the grid. The 11.94MW solar farm was developed by Lightsource Renewable Energy and was one of five solar PV projects to be awarded the renewables subsidy during the scheme’s first auction in 2015.

The farm won the contract with a ‘strike price’ of £79.23/MWh, and the construction of the project took just over two months to complete.

Since last year’s CfD rollout for solar, the UK Government has confirmed that there will not be a second CfD auction for which solar projects are eligible this year.

Chief executive of Lightsource Renewable Energy Nick Boyle said: “Great strides have been made in the industry and we firmly believe that solar has a significant role to play in the overall energy mix. If the UK is serious about the future of its energy security, it is important that this is addressed.

LINK: UK’s first contracts for difference solar project

Tesla warn of cost to businesses who do not plan a dynamic and engaging energy strategy

Tesla Energy has warned that businesses that do not prioritise their energy strategies will soon bear the full costs of a rapidly changing market. As a result, financial directors and boardrooms may face a rude awakening.

Head of UK sales Gerry Hamilton said: “You used to be able to have a 25-year plan in energy. National Grid’s report this year was so, so different to last year’s. A lot of businesses have not yet woken up to fact they need to change”.

According to Ofgem, industrial and commercial users account for more than half of electricity demand at peak times. Only a minority of these large users already benefit financially, by receiving payments or through reduced energy bills, from being more flexible in when they use electricity. Ofgem is encouraging businesses to actively consider the financial benefits that demand side response schemes can provide, as well as dynamic energy efficiency initiatives.

LINK: Energyst Tesla report on customer engagement

Switch to LED lighting to save UK council £14 million over 20 years

Bolton Council expects to save £14 million on energy bills over 20 years as a result of being energy efficient. More than half of Bolton’s street lamps have been switched to LEDs since the rollout began in April last year, impacting around 15,000 lights in more than 2,000 streets.

The Council spends £2.1 million on energy bills every year and carbon emissions cost £100,000 annually. The public sector authority expects to save around 50%.

Councillor Nick Peel said: “I’m really pleased that work is progressing so well. It’s an achievement to reach this milestone and the support and feedback from our residents has been overwhelmingly positive. The LED upgrade will ultimately save them money as we will see significant savings due to reduced energy bills, carbon reduction and lower maintenance costs.”

LINK: LEDs to save Bolton Council £14m over 20 years

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