This week’s Energy Spectrum overview | 29 May 2018

Energy Perspective

In this week’s Energy Perspective, we look ahead to this summer, a period that we believe could prove to be ground-breaking in terms of testing some long-held theories about flexible power systems.

With the electricity market in rapid in transition we explore a range of emerging market phenomena including the fact that GB renewables capacity is now – in theory at least – sufficient to meet demand at certain times and that transmission system demand is expected to reach new lows.

We argue that this could lead to outcomes including the depression of peak power prices on days with high solar output, coal units continuing to operate at significantly reduced running hours and wholesale power price cannibalisation becoming an increasingly common occurrence.

Policy

In this week’s Policy section, we examine Defra’s recently published Clean Air Strategy, which aims to build on the government’s legally-binding emission targets with new goals to cut public exposure to pollution. The plans include maintaining and building upon the current EU framework for industrial emissions to deliver a stable and predictable regulatory environment for business post-Brexit. It also outlines new rules on sale of fuels for domestic burning for heat, which we argue may have a substantial impact on heat decarbonisation and the increased role of local authorities.

The section also explores a Commons Environmental Audit Committee report on the government’s strategy to develop “world-leading green finance capabilities”. The report linked a marked decrease in investment since 2015 to government policy changes, which the committee said may have harmed investor confidence in low-carbon projects. The report puts forward several recommendations to reignite investment in clean energy. We view these as sensible and note that it will be interesting to see how the government responds.

We also cover the full decision text of the Competition and Markets Authority phase 1 decision on the SSE/npower merger and Energy UK recommendations ahead of the forthcoming Electricity Market Reform review.

Regulation

In this week’s Regulation section, we discuss the findings of a joint final report from the two task forces under the Charging Futures Forum that have been considering options for forward-looking network charges and network access arrangements.

We argue that the report covers a lot of ground and the task forces have made useful progress, including examining contrasting approaches at transmission and distribution level. However, the ambitious terms of reference and the breadth of work involved mean that there is still much to do to reach concrete proposals, consult on proposals and implement them.

The section also provides details on the progress of the Smart Meters Bill as it completed its final parliamentary stages and passed into law, as well as Ofgem’s views on the progress that suppliers are making on rollout. We argue that with the government sticking to the 2020 deadline, there should be more focus on the possibility of SMETS2 meters not being readily available by the SMETS1 end date and the upheaval this may cause.

Industry Structure

In our Industry Structure section this week, we review SSE’s full year results for 2017-18 that presented “a number of complex challenges” but delivered earnings per share ahead of expectations. We believe that the results will be seen as a positive for investors, with a clear dividend policy over the next five years. However, the poor operational result in the retail part of the business is clear and, combined with weak npower performance and increasing competitive pressures, may be of concern to the management of the demerged retail business.

The section also covers a Trading Update by Centrica, which stated that the company had achieved “good” financial performance over the last year despite a decline in customer numbers and Q1 2018 results from npower which show increased revenue and EBIT, but a loss of 66,000 domestic customers.

Nutwood

In this week’s Nutwood section we have two guest contributions focusing on solar.

The Editor of Solar Power Portal, Liam Stoker, discusses the often turbulent relationship between UK energy ministers and solar PV and how politicians’ promises have often failed to materialise. Looking to the future, Stoker calls not for “rocket boosters” or “a revolution” – as have been pledged in the past – but for a level playing field for solar PV: the chance to “compete with other generators fairly and squarely.”

Also in the section, regular contributor Perry Sioshansi writes from the US and highlights the increasing number of businesses going 100% renewable. He says that although these companies pay a premium to do so now, in the longer term it makes good business sense.

What is the Energy Spectrum service?

The Energy Spectrum service consists of two publications designed to keep you informed of key news from the energy market

  • Daily Bulletin –  a concise daily summary of the key news from the last 24 hours in policy, industry and markets, and regulation
  • Energy Spectrum – our longer weekly publication provides a more detailed look at the events of the previous seven days. Energy Spectrum discusses the headline news and highlights key information within each brief. It also includes a markets page outlining headline trends in gas, electricity, and commodities

Sign up to a free trial

To subscribe or to request a free four-week trial of the service, email Stephen Pointing at enquiries@cornwall-insight.com or call 01603 604 400.

Related thinking

Uncategorised

More details required for large-scale solar rollout in EU

Last week, our 'Financing net zero forum' gathered to discuss the role of private capital for the next wave of solar across Europe. Joining the meeting chair, Cornwall Insight's Daniel Atzori, were our guest panellists from a leading developer and the Global Infrastructure Investor Association (GIIA). With the European Commission...

Announcement

Energy market and net zero transition learning and development: Role-relevant career development training

We’re well over halfway through the calendar year and are now beginning to see more of the government’s thinking and policy-shaping around what needs to change to meet the 2050 net zero target. For example, the flurry of documents issued towards the end of 2020, including the Energy White Paper...

Business supply and services

Power prices for SME’s reach record highs

According to our latest Pricing in the SME power market report, Small and Medium Enterprises (SME) power prices have continued to rise in Q221, reaching the highest level since our records began in Q212. On average, prices have increased by 24.8% year-on-year at the PC3-6MWh and PC3-15MWh consumption points and...

Commercial and market outlook

Evaluating the benefits of local coordination mechanisms in power supply

In March, Cornwall Insight launched its new Energy Spectrum Europe publication in collaboration with the Institute of Energy Economics at the University of Cologne (EWI). Below is an extract of our Energy Perspective article from our latest issue, written by Konstantin Gruber and Nils Namockel from EWI. Local forms of coordination are...

Low carbon generation

Our Renewables Pipeline Tracker: In with the new – scoping projects and progression through planning stages

Our latest Renewables Pipeline Tracker was published on 11 June, and this blog provides a summary of some of the recent developments in our coverage of the pipeline for new build and repowering renewables assets in GB. What’s new? Seabed leasing rounds, scoping projects and CfD announcements Since our previous...

Heat networks

Reallocating electricity policy costs to incentivise low carbon heating technologies

Funding the cost of decarbonising the power system has mainly been through the consumers' electricity bills. In fact, in 2020-21 these costs amounted to a whopping £10bn. But is this method of raising revenue for decarbonisation still fit for purpose when faced with the need to decarbonise the nation's heat?...

Commercial and market outlook

Data centres predicted to become prosumers of electricity

In combination with Cornwall Insight and Bit Power, Host in Ireland published its Biannual report of Ireland’s Data Hosting Industry. The report highlights the importance of sustainability in Ireland’s digital transformation. The report confirmed the number of operational data centres in Ireland increased by 25 per cent over the past...

Low carbon generation

Your invite to our wholesale Summer Outlook 2021 webinar

We are delighted to invite you to our wholesale Summer Outlook webinar. On 12 May, Cornwall Insight will be hosting an open webinar covering our independent views, analysis and outlook of the upcoming summer 2021 period. As part of this session, we will explore a range of both historic and...