This week’s Energy Spectrum overview | 30 April 2018

In this week’s Energy Perspective, we explore how for storage the preference to move to the behind-the-meter proposition is increasing as the initial interest in grid-scale assets wavers.

We argue that there are many good reasons for this trend, including the fact that it allows organisations to maximise revenues by taking advantage of off-peak charging and peak discharging rates as well as opportunities to avoid network and other costs.

But, as with any storage, the behind-the-meter option also presents many challenges. These include dealing with revenue-sharing arrangements for different stakeholders in a project, the fact that offerings from storage providers in the market are not straightforward and, once a business model has been identified, the need to integrate it with existing supplier arrangements for the customer.

On top of this, we outline the challenges we anticipate are yet to come – primarily maintaining revenue streams in future years given probable future regulatory reforms.

In this week’s Policy section, we examine the news that the Competition and Markets Authority (CMA) has said that the proposed merger between SSE and npower could result in higher prices for some billpayers due to reduced competition. As a result, the CMA has called for the two companies to provide measures to address its concerns.

We argue that given the size of the proposed new supplier, these concerns were inevitable, but equally that it is extremely unlikely that the companies will not have been prepared for such an outcome. 

The section also looks into recent Social Market Foundation proposals to reduce and eliminate what it describes as the “iniquitous and unfair” energy poverty premium faced by low-income consumers.

In this week’s Regulation section, we delve into Ofgem’s final two working papers on the government’s default tariff cap. They set out Ofgem’s view on the environmental and social obligations placed on suppliers, and how the costs of the schemes could be treated under the cap.

We also discuss proposals by National Grid and the National Transmission System Charging Methodology Forum to develop changes to the structure of gas transmission charging to comply with EU Tariff network code requirements and to better fulfil stakeholder objectives. The work has been ongoing following a review by Ofgem of the current gas charging arrangements.

We argue that the task to complete supporting analysis and coherently marshal the materials for Ofgem’s consideration looks challenging given the last-minute rush to get options on the table in what has become a very important work-stream.

In our Industry Structure section this week, we look at Iberdrola’s strong Q1 profit rise alongside comments made by city analyst Bernstein questioning the company’s ability to continue its growth.

The section also reviews our latest Index of Domestic Energy Supply Costs and examines the mixed impact that updated third party charges have had on supplier costs. Overall, we see a growing proportion of supplier costs come from third party charges and therefore expect the trend of suppliers increasing their standard variable tariff (SVT) rates seen across March and April to continue, even as pressure on wholesale costs abates.

In this week’s Nutwood section, industry expert and Cornwall Insight Associate Simon Skillings explores the role of policy and regulatory risk in the energy industry. As the traditional “linear” energy system inevitably succumbs to a more complex patchwork of decentralised energy trading, he asks what this shift means for the future of policy and regulation.

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