Informer Issue 547 - 01/02/2022

Average day-ahead electricity prices rose by 235% last year as colder weather and low wind generation contributed to record highs on GB markets. Energy consultancy EnAppSys said the figure jumped from £35.26/MWh in 2020 to £118.29/MWh. The final quarter of 2021 also saw more price records broken, with both day-ahead and system prices hitting record high averages as gas, coal and carbon prices all continued to rise. EnAppSys’s 2021 report on the GB markets showed that with many lockdown restrictions eased, electricity demand recovered from its 2020 dip, climbing 4% from 2020. However power demand was still lower than in 2019 before Covid hit, in line with a recent trend of decreasing consumption as a result of increased appliance efficiency and reduction in energy-intensive industry. Gas-fired CCGT generation was the greatest contributor to the system generation mix during the year with a total output of 107.5TWh, more than the 105.5TWh total of all renewable generation. Renewable output fell compared to 2020, mainly due to lower than usual windspeeds in Q1 to Q3. Total wind output was 62.4TWh in 2021 against 68.3TWh in 2020, the largest year on year decrease in wind generation in history for GB. Read more

The Government has increased the target volume for the upcoming T-1 Capacity Market auction due to “broader uncertainties” in the power sector. In a letter to National Grid ESO, Energy Secretary Kwasi Kwarteng said he had decided to set a target volume of 5.361GW for the auction for delivery in 2022/23, an increase on the system operator’s recommended target of 4.7GW. “While I agree with the analysis you provided…this target reflects the broader uncertainties within the power sector,” said Kwarteng. For the T-4 auction for delivery in 2025/26, Kwarteng accepted a recommendation to decrease the target by 0.5GW “to account for small technical considerations”. This takes the capacity target for the 2025/26 delivery year to 43.6GW. Last week National Grid ESO issued its first Capacity Market Notice of the year after supply margins fell although withdrew it shortly afterwards. Read more

Assessing the value of investment in flexibility such as DSR and battery storage needs to include the benefits of mitigating the risk of cost increases not just its ability to generate revenue, according to a new report. The report from The Carbon Trust and Lloyds Bank said that although investing in energy flexibility is a “no-regret option” from an energy systems perspective, at a project level the value of flexibility is often either not well understood or difficult to assess. Flexibility services which form part of a wider asset investment - such as enabling DSR at a new industrial site or storage assets co-located with renewable energy - can deliver upfront capital cost savings such as reducing the cost of connecting to the local grid because they reduce the capacity required or enable a more flexible connection to be approved, the report points out. They can also mitigate the impact of future risks, such as switching from a fixed to a time-of use energy tariff, by enabling an energy user to vary when they import electricity from the grid and so minimise their energy bills. The report builds on a recent Flexibility in Great Britain project from The Carbon Trust and Imperial College which estimated that timely deployment of additional energy system flexibility could reduce the cost of meeting Net Zero by up to £16.7bn a year. Read more

The UK Government is putting up £100m to back plans for a major new nuclear power station in Suffolk. The funding commitment will be used to continue the development of the project and aims to attract further financing from private investors. Negotiations between the Government and Sizewell C project developer, EDF, have been ongoing since last year. If built, Sizewell C would power the equivalent of around 6 million homes, as well as supporting up to 10,000 jobs in Suffolk and across the UK. Business and Energy Secretary, Kwasi Kwarteng, said: “In light of high global gas prices, we need to ensure Britain’s future energy supply is bolstered by reliable, affordable, low carbon power that is generated in this country. “New nuclear is not only an important part of our plans to ensure greater energy independence, but to create high-quality jobs and drive economic growth.” If Sizewell C reaches a Final Investment Decision, the Government will be reimbursed the £100m option fee with a financing return, either in the form of either cash or an equity stake in the project. Read more

Over half of the UK’s domestic electricity and gas suppliers are at imminent risk of collapse, according to analysis. Accountancy firm Price Bailey assessed the credit risk scores and balance sheets of the 22 remaining suppliers - excluding the Big Six – and found 12 have negative asset figures on their balance sheets and are deemed to be technically insolvent. Price Bailey said that while the customers of failed suppliers have been transferred to surviving suppliers, many of the surviving suppliers are on the verge of collapse which means that many customers face the inconvenience of being transferred multiple times and significantly higher bills as a result. Partner Matt Howard said: “The winter of discontent for the energy supply sector is unlikely to end soon. Around half of suppliers have already gone bust and at least another half are technically insolvent and at imminent risk of collapse. These businesses will find it almost impossible to access extra funding unless directors provide personal guarantees, and few are likely to do so in the current climate. “We are seeing a domino effect. Every time a small energy retailer goes bust, that increases the financial strain on the rest of the ecosystem, making those businesses more vulnerable to collapse.” Read more