Informer Issue 557 - 19/07/2022

The Government has launched a review to pave the way for what it said could be the biggest reform of the electricity market in a generation to improve security of supply and cut prices. Possible changes under the Review of Electricity Market Arrangements (REMA) include decoupling gas prices from the wholesale electricity market, reforming the Capacity Market to attract low carbon flexibility technologies, and introducing incentives for consumers to use energy when demand on the grid is lower. BEIS said it wanted the review to radically reduce the country’s exposure to volatile global gas markets and to cope with an expected doubling in electricity demand over the next 13 years. Energy Secretary Kwasi Kwarteng said: “We’ve just seen the price of offshore UK wind power fall to an all-time low and gas is a shrinking portion of our electricity generating mix, so we need to explore ways of ensuring the electricity market is adapting to the times.” “In what could be the biggest electricity market shake up in decades, I am confident that this review will significantly enhance GB’s energy security and supply for generations to come.” The consultation on the review is open until 10 October. Meanwhile, a report by industry body Energy UK said rapid expansion in generation capacity is needed and that the Contracts for Difference and Capacity Market mechanisms need to evolve to ensure they remain fit for purpose. Read more

The system operator issued two Capacity Market notices as record temperatures drove increased demand and saw prices spike higher across Europe. National Grid ESO said it was confident that electricity margins between demand and supply were sufficient but the alerts to providers in the Capacity Market were triggered automatically when margins are reduced. The two notices for Monday evening were later withdrawn. Analysts at LCP Energy said the record temperatures were driving high demand, causing plant issues and a spike in prices which saw increases on Monday of up to 58% on the same time last week. Partner Rajiv Gogna said the price rises were being driven by a number of factors. “In these extreme heatwaves, grid systems see huge spikes in demand as a result of increased energy usage for cooling systems across the country,” he said. “But a key driver and concern for those in the industry is that at the temperatures we are seeing across the UK and Europe, much of the energy systems are simply less efficient and can’t deliver the normal power capacity.” In an update, the Energy Networks Association stressed network infrastructure is designed for extreme temperatures and was operating as normal, but companies in the areas affected by the Red Warning from the Met Office have “escalated their internal preparedness as a precaution”. “This is done as standard when extreme weather is forecast and helps us prepare should there be any impact on customers,” it said. Read more

Organisations representing thousands of businesses have written a joint letter to the candidates vying to be the next Prime Minister urging them to step up efforts on Net Zero. The UK Business Group Alliance for Net Zero (BGA) and the UK Corporate Leaders Group (CLG UK) have brought together other leading groups to emphasise the importance of the clean energy transition in improving energy security and help households deal with the cost of living crisis. The letter said business leaders had seen “first-hand that investment in low carbon infrastructure and technologies delivers huge economic benefits”. “Supportive policy measures bring down the costs of clean technology, enabling businesses to capitalise on growing global markets. The benefits are significant,” it continued. “From job creation, increased exports, and geographically dispersed growth to inward investment and improved air quality from clean energy. Important contributors to levelling up opportunity across the UK.” Read more

The second quarter of 2022 saw Britain become a net exporter of electricity for the first time, according to new data. Energy consultancy EnAppSys said 3.6TWh of power was exported during the period, compared to the first quarter when Britain imported 5.2TWh. EnAppSys said lower gas prices in Britain led to it seeing lower wholesale electricity prices than its European neighbours which resulted in increased exports. Issues with the French nuclear fleet also increased the need for more imports from GB. The consultancy’s Q2 power market report showed that gas-fired CCGT was the biggest contributor to Britain’s power mix during the period. Wind generation also achieved its highest level of any Q2 period on record with 15.8TWh of generation. Although wholesale power prices were as much as 30% lower than in the first quarter of the year, they were still double those seen in Q2 2021. Demand was lower than in Q2 2021 and Q1 2022, which EnAppSys said indicated that the overall trend of decreasing transmission level system demand seen in the last few years is continuing. Total transmission level system demand was 52.9TWh in the quarter compared to 57.5TWh in Q2 2021. Read more

The latest round of CfD contracts for wind and solar projects would save £7 billion on electricity costs under recent wholesale price levels. Analysis by the Energy and Climate Intelligence Unit said the gas price spike and the UK’s reliance on gas power plants had taken electricity prices up to around £200 per megawatt-hour (MWh) in recent months. The latest CfD auction awarded contracts at prices that are a quarter that of gas power plants during the crisis, and on average lower even that the price of gas power before the crisis. Dr Simon Cran-McGreehin, Head of Analysis at ECIU, said: “To keep bills low, these new wind farms can’t come online soon enough. At today’s prices with gas so expensive every household would be getting the equivalent of a £100 net zero dividend. In the meantime, existing wind and solar projects are already doing their bit to help bill payers, saving an estimated £1.3 billion over 18 months in the current gas crisis” Read more