Renewables and Nuclear Power
The only positive on offer has been talk of a further renewed push towards renewable electricity and encouragement for mini-nuclear reactors even though no working prototype or final design exists yet.
In the event that new renewables and small modular reactors combined do work together to provide the extra peak and base-load volumes needed to offset the fact that the UK will lose the final four of its five operating nuclear reactors five years from now, there is the demand impact of the transition to EV transport, commercial and residential heating electrification to consider.
There seems to be no concrete medium-term solution on the table therefore.
Perhaps unsurprisingly, some quite interesting debates and contrasting views are now doing the rounds in energy trading circles.
The market fundamentals look precarious for both fuels. However, barring a change in UK energy policy soon, perhaps the power market is the tighter one.
The Russia-Ukraine war and global gas supply problems may be partially resolved in a year’s time. The power market though faces a seemingly intractable problem of mobilising enough extra carbon-neutral and reliable electricity on time.
Consequently, the forward market in electricity looks set to command the higher risk-premium of the two in future and it is already far less liquid than the gas market.
With that in mind, the spark spread could make up much of its lost ground, possibly moving back above £50/MWh and staying there for some while yet.
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 private entities on a range of energy origination, strategy and trading issues.
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