This week’s Energy Spectrum overview | 21 May 2018

Energy Perspective

In this week’s Energy Perspective, we examine the emerging risks of increasing wholesale price cannibalisation, based on the results of our latest insight paper.

We expect renewables to make up a significantly larger proportion of the generation mix in the coming years, but argue that alternative sources of predictable revenue to make up for lost subsidies are not currently available. Therefore, new renewable projects will increasingly look to the wholesale power markets to underpin investment.

Our research reveals however that as solar and wind capacity and output continues to increase, the “cannibalisation effect” looks set to lower wholesale power prices to the extent that, if unchecked, it could jeopardise investment in new renewables capacity. 

We also outline several key questions that our results raise for both industry and policy-makers regarding ambitions to deliver the maximum capacity of low-carbon generation at the lowest possible cost.


In this week’s Policy section, we take a look at the findings of a National Audit Office investigation into the 2017 Contracts for Difference auction. The investigation revealed that rule changes made to the process will cost energy consumers approximately £1.5bn extra over the 15-year life of the contracts.

We argue that the criteria used always ran the risk of unintended consequences, and that if policy-makers do want to pursue picking winners then separate technology pots seem the best option.

The section also discusses the House of Commons Public Accounts Committee’s final report of its inquiry into the Renewable Heat Incentive, which concluded that the scheme has failed to meet its decarbonisation objectives or provide value for money.


In this week’s Regulation section, we discuss Ofgem’s consultation on reforming elements of supplier obligations in relation to customer communications. It intends to introduce new principles ensuring customers get the information they need to effectively engage with their energy supplier, which we expect to lead to a wider use of multiple communication channels and customer-specific solutions but perhaps also more interpretation, and potentially disputes.

We also cover the developments of the Trans-European Replacement Reserve Exchange (TERRE) project being undertaken to meet a requirement of the EU Electricity Balancing Guidelines. A customer opt-in may be required for suppliers to receive information on reserve providers’ delivered volumes if the original version of the BSC modification P344 proposal is approved. We argue that this change is an important one, not only for delivering TERRE but also because the new type of BSC Party and the Panel’s preferred option starts to challenge the current supplier hub paradigm.

Industry Structure

In our Industry Structure section this week, we review EDF’s Q1 2018 financial results, which we believe paints a largely positive picture overall as sales volumes, nuclear prices and customer tariffs all increased on the previous year.

However, much of this success hinged on improved performance in France. In GB customer numbers and volume sales continued to decline, as well as reduced nuclear output that may grow worse if current problems at Hunterston B affect other reactors.

We also detail the findings of SmartestEnergy’s Energy Entrepreneurs 2018 report, which highlights slowing growth in the number of projects being brought forward by independent renewable generators.

The section concludes by examining the potential long-term implications on the oil market of the US decision to withdraw from the Iranian nuclear accord.


In this week’s Nutwood section Chris Stark, incoming Chief Executive of the Committee on Climate Change (CCC), reflects on what the CCC has achieved and looks ahead to its areas of focus in the coming years.

Also in the section, Cornwall Insight Associate Peter Atherton analyses the trends behind the numbers for National Grid’s full year results for 2017-18. He argues that the results were strong, albeit largely in line with market expectations, and expects growth to continue. 

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