With five of the Big Six having published their segmental accounts – breakdowns of financial performance and costs across generation and supply business areas – it is readily apparent that, in general, margins are on a downward trend. In this week’s Energy Perspective, we suggest that, while some suppliers were losing money supplying some fuels in 2016, but still – for the Big Six at least – able to post record domestic energy supply profits, the picture just two years later is much bleaker. Further, the somewhat frank language laid out in parent company reports doesn’t leave much room for optimism, with all citing the price cap and competition squeezing profits.
The UK’s latest and third Contracts for Difference allocation round (AR3) opened on 29 May and, with a limited budget for the round, competition between projects is likely to be fierce, especially from offshore wind providers. We look more closely at AR3 in this week’s Policy section.
On 24 May, Ofgem published its sector specific methodology decision for the RIIO-2 price controls starting in 2021. In this week’s Regulation section, we state that while there is a lot of new thinking around driving innovation, responses to vulnerability, and stimulating environmental measures, the immediate media focus has been on how far allowances will be reduced against current controls and the estimated £6bn saving. We will be looking into Ofgem’s position in more detail soon.
A UK Energy Research Council briefing paper on the flexibility of Britain’s gas networks offers an interesting perspective on a new area that will need to be considered given the looming issue of heat decarbonisation and the repurposing of the gas networks. We look more closely in this week’s Industry Structure section.
In this week’s Nutwood, our analyst Joe Camish discusses several notable unplanned outages on the NEMO Link interconnector during May. There are, he suggests, some important learnings for market participants.