Empty spaces: is there a case for new gas storage?

Overview of this week’s Energy Spectrum publication

In this week’s Energy Perspective, we explore the implications of recent gas supply incidents and ask the question – do we need more gas storage?

Historically, the GB market has lacked the gas storage capacity of its European counterparts. This was brought into sharp focus after the closure of Centrica’s Rough storage facility followed by disruptions to production and supply in the UK, Continental Europe and Norway in early December. This reignited the debate on the value of storage.

Those developments in December highlighted different ways in which storage’s value can be assessed. These include the geographical nature of an asset and its proximity to the UK market and the ability of storage to serve as an insurance policy to help security of supply. However, this insurance element is the most difficult to access because higher and more volatile gas prices will inevitably feed into end user bills. This in turn impacts the need to invest in the gas network to meet the needs of new import projects, once again impacting bills.

The government has periodically looked at whether it needs to intervene directly to secure gas supplies and 27 January saw BEIS Minister Richard Harrington confirm a further review of the nation’s strategy in this area. With there already having been a review in October 2017, one following so soon after could indicated that a re-think is on the cards.

In this week’s policy section, we look at some of the key points raised in the Lords’ Economic Affairs Committee evidence session into the economics of UK energy policy. Much of the discussion revolved around nuclear. Business and Energy Secretary, Greg Clark confirmed to ministers that the government remains committed to new build nuclear and that any delay to Hinkley Point C would not pose a risk to security of supply.

We also break down the National Audit Office’s (NAO) report into the Renewable Heat Incentive (RHI). The NAO concluded that the scheme has “not achieved value for money” in GB – with take-up lower than expected and renewable targets and carbon reduction goals watered down. We find the assessment delivered was mixed but fair for a scheme that has had both its challenges and successes.

In our regulation section, we look at the significant speech given by Ofgem CEO, Dermot Nolan at the launch of Sustainability First’s Project Inspire report. The report itself highlighted how innovation can bring significant benefits to vulnerable customers. Through his speech, Nolan provided detailed, mostly supportive responses to the 18 report recommendations while noting that the regulator may well decide to leave a protection for vulnerable customers in place after the government’s wider cap is withdrawn.

In our industry and markets section, we look at EDF Energy’s full year financial results, which showed an operating loss of £3mn for 2017. Lower electricity output and lower wholesale prices were cited as being behind this. Despite the loss, the supplier has seen strong domestic customer retention when compared to its large competitors over the last year.

In this week’s Nutwood, Cornwall Insight Associate Peter Atherton breaks down Centrica’s 2017 results, which saw a 17% fall in total adjusted operating profit with its biggest problem coming within its B to B businesses in both the UK and North America.

Our Energy Spectrum service comprises two publications designed to ensure you stay ahead of the game:

  • The Daily Bulletin – providing you with up-to-date information, collating the most important political, regulatory and industry developments from the previous 24 hours
  • Energy Spectrum – offers the latest news and expert comment and is seen as an essential source of analysis and insight on developments in the British energy markets

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