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WHOLESALE ENERGY PRICES: SEPTEMBER 2016: PART II: ELECTRICITY

In this new series of articles, Dominic Whittome covers recent changes to wholesale energy prices.

Electricity

The delay in Hinkley Point was expected as suggested in the July issue. However, this is not necessarily the last word on the project or a new plant in Somerset. Notwithstanding the very high price subsidies involved and the Faustian dilemma over China’s involvement which the new cabinet has inherited, a future fleet of nuclear plants remains on the cards, but none early enough to address the immediate supply concerns.

If China is denied the chance to build a Thorium reactor at Bradwell, they may see no incentive to invest money in any ‘limited profit’ venture at Hinkley. If so, development of this EPR project could cease or be delayed further. Regardless of how this saga pans out, no new-build reactors are likely to come online for another ten years.

Meanwhile, solar and onshore wind developments are being delayed by new 3 year moratoriums introduced by distribution network operators in charge of lower-voltage, sub-132kV regional grids.

With no reprieve in sight for coal-fired generation, much of the base-load and almost base-load the system needs will have to come for gas. Consequently, we may yet see a 4th ‘dash for gas’ evolving in years ahead, certainly in respect of rapid-response and balancing volumes.

The shortage in peak shaving capacity is partly reflected in rising grey market and prospective Grid auction prices for frequently response or reactive power volumes, reported in excess of £40/kW. Calendar base load did soften 8% over the period. But this price fall probably belies potentially shortfalls in short term volumes, which renders the prices vulnerable to greater shocks than before. It is this that will concern industrials and contingency buyers as we move into winter.

Prospect Law and Prospect Advisory provide legal and business consultancy services for clients involved in the infrastructure, energy and financial sectors.

This article remains the copyright property of Prospect Law and Prospect Advisory and neither the article nor any part of it may be published or copied without the prior written permission of the directors of Prospect Law and Prospect Advisory.

Prices quoted are indicative and may be based on approximate or readjusted prices, indices or mean levels discussed in the market. No warranty is given to the accuracy of any view, statement or price information made here which readers must verify.

Dominic Whittome is an economist with 25 years of commercial experience in oil & gas exploration, power generation, business development and supply & trading. Dominic has served as an analyst, contract negotiator and Head of Trading with four energy majors (Statoil, Mobil, ENI and EDF). As a consultant, Dominic has also advised government clients (including the UK Treasury, Met Office and Consumer Focus) and various private entities on a range of energy origination, strategy and trading issues.

For more information please contact us on 020 3427 5955 or by email on: info@prospectadvisory.co.uk. 

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