Market Developments | News and Commentary

Headine:

High energy prices fuel inflation:
“A major risk to the outlook for growth and inflation comes from energy prices,” King said. “Past increases in oil and gas prices may have eroded the supply capacity of the economy and altered the balance between demand and supply. The increases in gas prices, which were announced recently, are likely to push inflation over the target in the short-term, and erode the purchasing power of household incomes thus slowing the growth of consumer spending. Fortunately, despite higher energy prices earnings growth has so far remained relatively stable.”
The governor’s comments follow the Budget statement by Chancellor Gordon Brown, in which he made strong references to the energy market and the importance of achieving an energy policy that integrates security, affordability and sustainability.
Over the past year, movements in energy prices have dominated fluctuations in inflation, and these now present a threat to economic growth, with consumer prices rising 2pc in February following growth of 1.9pc in January, the governor of the Bank of England Mervyn King told the parliamentary Treasury Select Committee last week, explaining the Monetary Policy Committee’s interest rate decisions.

UK News:

Government urged to increase enenrgy efficiency efforts:
In the wake of Defra’s confession that it may not meet its CO2 reduction target of 20pc below 1990 levels by 2010 the Energy Retail Association (ERA) has called on the government to increase its efforts to change consumer behaviour toward the environment and energy efficiency. According to a statement from the suppliers’ organisation, the energy retail industry has invested £800mn over the past three years on energy efficiency measures, which prevented 15.5mn t of CO2 emissions, and expects to invest a further £1.2bn over the next three years. It is crucial that people wake up to the fact that energy is a precious resource and the era of cheap energy is coming to an end, according to the chief executive of the ERA Duncan Sedgwick. “We all need to do our bit to make people more ‘energy aware’ while providing accessible information and services that make it easy for people to reduce their energy consumption,” he said.

April brings shower of government cash for energy projects:
Emerging energy technologies are set to receive the largest single share of an £80mn government handout to help research and development projects in the first month of this year’s DTI Technology Programme, the trade and industry secretary Alan Johnson announced late March. Of the seven high priority areas earmarked for funding by the DTI, the energy sector is given the lion’s share with a £17mn allocation. Of this, £15mn will be awarded to collaborative projects aimed at developing low carbon energy technologies, and £2mn will go towards helping emerging oil and gas technologies.

European News:

Talk of a European merger causes a stir:
There remains considerable excitement and controversy in France over the possible merger of GDF and Suez, with French President Jacques Chirac being forced to defend his position on economic patriotism in the face of mounting criticism across Europe. It is ironic, in some respects, that there is also internal dissatisfaction with the move. The unions are strongly opposed to the GDF/ Suez merger and are calling instead for EDF and GDF to merge into a 100pc state-owned energy group. A GDF/ Suez merger would see the government holding only around 34pc of the merged company.

Electricity:

Electricity prices for all periods tracked movements in corresponding gas contracts, although spark spreads fluctuations limited the changes in power prices. While the day-ahead price remained more or less static, prices for the week-ahead appreciated on forecasts predicting colder weather.

Gas:

Although daily prices weakened last week, prices for the week-ahead appreciated on forecasts predicting colder weather. Near months edged higher as the expectation of additional supplies from the Rough storage facility were dashed on Monday and the summer ’06 contract rose 2p/th in total.

Water:

Ofwat changes name:

On 1st April there were some changes to Ofwat. Their statutory name changed to the Water Services Regulation Authority although they will continue to be known as Ofwat. A new Board has replaced the Director General and now takes responsibility for the economic regulation of the water and sewerage industry in England and Wales. The appointment of Philip Fletcher as Chairman following his five years as Director General helps to promote certainty and reduce regulatory risk during this transition period.

Quote of the week:

The British Wind Energy Association is calling on the government to maintain a positive approach to planning policy and urgently address delays to planning decisions which are spiralling towards three years, particularly in Scotland. The BWEA’s head of onshore Chris Tomlinson said “Wind is already firmly established as part of the UK’s energy mix and its continued expansion must be fully recognised in the government’s energy review.”

Headine:

Ofgem publishes next steps on non-domestic supply review:
Ofgem has published an open letter on the way to progress its review of the non-domestic supply market, following a consultation issued in November. Ofgem acknowledges in the letter that many non-domestic customers are facing genuine difficulties in the market, but states that it is not yet clear whether issues raised through the consultation indicate a failure of the retail market. It is also unclear that a retail market review is an appropriate or proportionate response to the current problems, it adds. The regulator argues that it may be more relevant to assist customers to improve their understanding of the market and participation in it. As a result, it proposes a set of initiatives aimed at directly tackling the key difficulties customers are facing. But a future full market review is not ruled out at this stage. Ofgem says it proposes to work with small and medium-sized enterprises (SMEs) and public sector buyers to better appreciate and quantify their key concerns, and will include consultation with brokers and analysts to assist customers in backing up their case.

UK News:

Bottlenecks restricting UK gas imports, seminar hears:
While continental gas markets are “unsatisfactory”, it is largely physical congestion at key points in Germany and the Netherlands that are restricting the gas transmission network’s ability to deliver gas to the UK market, rather than market manipulation by continental European players, the Director General for competition in the European Commission Iain Osborne, who is involved in the investigation into the lack of flows into the UK market from the continent, told an Ofgem seminar in March. While it is too early to make any announcements regarding breaches of competition law, if abuses of laws are uncovered then “the amount of gas diverted from the UK is small,” he said, indicating that supply constraints are physical rather than contractual issues. Osborne suggested that one factor may be the tighter quality requirements for the UK market, adding that there are plans to introduce more blending in the Belgian system.

Scottish Power completes Pacificorp sale:
Scottish Power last week completed the sale of its US subsidiary Pacificorp to Mid American Energy Holdings Company (MEHC), with the deal going through ahead of schedule. MEHC will pay for $5.1bn (£2.91bn) in cash and assume all of Pacificorp’s outstanding debt on the completion of the deal, and has agreed to release Scottish Power from indemnities and warranties other than those relating to corporate taxes and environmental issues, in return for a $40mn reduction in certain payments due to be made by Pacificorp to Scottish Power. As a consequence of the sale completion Scottish Power said it proposes to return £2.25bn of the sale proceeds to shareholders and will make a £200mn special contribution to the company’s pension schemes in order to repair deficits reported last December. Chief executive Philip Bowman expressed his pleasure in completing the sale ahead of schedule and on favourable terms, adding that the proceeds from the deal “will allow the group to concentrate on developing its continuing businesses”.

European News:

Defra issues consultation on EU cogen directive:
The government last Monday began a second industry consultation over the EU’s cogeneration directive (2004/8/EC), which aims to improve the take-up of combined heat and power (CHP) schemes in the UK as well as in the rest of Europe, thereby contributing towards the security of energy supply and the achievement of the EU’s emissions-reduction targets. The focus of this new consultation is on Article 5 of the directive, which deals with the “guarantee of origin” provisions contained within the European legislation. This article requires that plant operators must:

* specify the fuel source from which the electricity is produced; specify the use of the heat generated together with the electricity;
* specify the dates and places of production;
* specify the quantity of electricity from cogeneration that the guarantee represents;
* specify the efficiency reference values for separate production of electricity and heat, and the efficiency of cogeneration; and
* enable producers of electricity from cogeneration to demonstrate that the electricity they sell is produced from cogeneration within the meaning of the directive.

Electricity:

Electricity prices tracked movements in corresponding gas contracts last week. But there was a peculiarity seen in the market with a rally in curve prices despite a sliding prompt. Day-ahead electricity plummeted by an astronomical £90/MWh, tracking the nose-diving prompt gas market amid healthy supply margins.

Gas:

Prompt electricity and gas prices shed most of the gains made in the previous week, in which prices rose to historic highs following an unexpected cold snap. But long-run contracts remained strong on the back of a recognition of demand- and supply-side risks and the strength in oil, coal and carbon.

Water:

Ofwatt proposes to fine Southern Water for failing customers:

Ofwat today gave notice that it is proposing to impose a financial penalty on Southern Water for its failure since April 2005 to achieve customer service performance standards under the Guaranteed Standards Scheme (GSS). This is a procedural step which must be taken before any financial penalty may be imposed. Notice has to be given within 12 months of the failure to achieve customer service standards. The notice applies only to the customer service performance standard failures that have been occurring since 1 April 2005, as that was the date when Ofwat's power to impose financial penalties came into force.

Quote of the week:

Swimming pools across the country could face closure as a result of increased energy prices, Chair for the Local Government Association (LGA) board Chris White says. “Town halls are being squeezed financially like never before and this massive hike in energy prices is making it incredibly difficult for them to keep prices down and some pools afloat.”

Headine:

Government plays down talk of a gas crisis:
Trade and industry secretary Alan Johnson last week dismissed concerns that the UK was on the brink of a formal gas supply emergency, following system operator National Grid’s decision to issue its first Gas Balancing Alert, which prompted gas prices to increase four-fold to an all-time high of 225p/th. Responding to an urgent question from Liberal Democrat MP John Hemming following the balancing alert, which suggested demand could outstrip supply last Monday, Johnson provided assurances that a supply crisis remained some way off. “While it is clear that we must not be complacent, it is equally important not to cause panic,” he said. “The present situation does not threaten domestic, or the vast majority of commercial and industrial, supply. And even were there to be an emergency, National Grid would be able to maintain supplies to domestic and other key gas consumers.” continental European system.

UK News:

Marks and Spencer plans to save energy:
Marks and Spencer is set to launch a new energy saving system in its UK and Ireland installations that will monitor temperatures in order to “keep tabs and save money”, according to the Energy Saving Trust. “The impact on the bottomline is compelling, with the business making significant savings not only in lost and wasted energy efficiency but also in contractor travel time, emissions from their vehicles, maintenance strategies and equipment life,” said the company’s refrigeration manager Bob Arthur. The system uses an internet-based process tracking energy use through the placement of sensors on appliances.

Network investment needs longer planning and payback period – ENA:
Securing investment to upgrade the UK’s energy transmission and distribution networks is one of the most critical issues facing the county’s energy industry and needs to be addressed urgently as part of the government’s Energy Policy Review. But to deliver the necessary investment in a timely manner, network owners need to operate under a planning and investment period that is far longer than the current five-year price controls. These key points were made in a letter dated 13 March from the chief executive of the Energy Networks Association (ENA) Nick Goodall to the head of the government’s Energy Policy Review team, Paul McIntyre.

European News:

Ministers act swiftly to agree framework for new European Energy Policy:
A more co-ordinated approach to the security of energy supplies and the achievement of environmental imperatives must be given the highest priority of all the political and economic issues currently facing the European Union, member states’ ministers agreed in Brussels last week, reinforcing the urgency that individual governments are attaching to these matters. And EU energy ministers also agreed a framework for a new energy strategy largely in line with the objectives of the European Commission’s green paper on energy policy.

Electricity:

Day-ahead electricity prices rocketed by an astronomical £79.30/MWh last week, tracking the spiking prompt gas market and bolstered by squeezed supply margins. The movements in the electricity price reflect the corresponding change in the gas prices.

Gas:

With the long-range gas storage facility at Rough remaining offline, the declaration of Gas Balancing Alert by the National Grid on Monday in the face of much colder weather than was forecast created a panic in the gas markets and prompt prices rose to record-high levels.

Water:

Water companies group together to beat the drought:

Water companies in the South of England have joined forces with the Environment Agency to help beat the drought. Thames Water, Southern Water, Three Valley Water, Sutton and East Surrey Water, Folkestone and Dover, Portsmouth Water and South East Water are part of this campaign.

Quote of the week:

“I am pleased to support ‘Click for the Climate’ and will be turning down the thermostat by one degree to reduce my personal energy usage. Tony Blair promised to turn down his thermostat to help cut CO2 as the lightbulb in the lantern that hangs outside 10 Downing Street was symbolically switched to a low-energy bulb.

Headine:

Trend in merger and acquisition activity is toward domestic consolidation:
The energy market is moving into a new “blockbuster era”, fuelled by the rise of super-regional utilities and further consolidation in the European market, according to a report published by accountant Pricewaterhouse Coopers (PWC) on merger and acquisition activity. And in the wake of Gas Natural’s proposed takeover of Endesa and the potential merger of Suez and GDF, PWC notes that the deal momentum seen last year is continuing into 2006. “The electricity and gas merger and acquisition activity surpassed the exceptional momentum that had already built up and is continuing to gain speed in 2006”, said PWC global utilities leader Manfred Wiegand.

UK News:

EDF to develop sustainable energy solutions for London:
EDF Energy has been named as the preferred bidder to set up a joint venture company to develop sustainable energy schemes for London with the London Climate Change Agency. The company aims to tackle climate change by developing local sustainable energy solutions to the city’s power, heating and cooling needs. It will identify and develop sites across the capital where investment in sustainable energy technology would reduce carbon dioxide and other greenhouse gas emissions. “A diverse mix of energy is the key to security of supply for the UK in the longer term and central to the fight against climate change. Local solutions will need to play their part as part of that diverse mix,” said EDF Energy chief executive Vincent de Rivaz.

European News:

UK delivers Nerp to European Commission:
The UK government’s final proposals for the adoption of the Large Combustion Plant Directive (LCPD) were delivered to the European Commission at the end of February, detailing plant-by-plant allowances for emissions of NOx, SOx and dust beyond 2008. The proposals include the finalisation of the UK’s “hybrid approach” to the scheme, and see some power stations switching from Emissions Limit Values (ELVs) to the National Emission Reduction Plan (Nerp), as permitted under a commission ruling taken earlier this year.

Electricity:

Electricity prices of all vintages tracked the movements in corresponding gas contracts. The peculiarity of this week was a rally in the curve prices despite the sliding prompts. Day-ahead electricity came off by about £15/MWh last week tracking the falling prompt gas, lower electricity demand, the healthy supply margins and cheaper imports from France. Another important feature was that most of the fall was seen on Monday and prices tried to stabilize afterwards.

Gas:

With the long-range gas storage facility at Rough remaining offline, UK gas demand was relatively milder on the back of above-average temperatures. The healthy level of gas and LNG imports brought down the day-ahead and weekend prices by about 11p/th and 7p/th respectively, while week-ahead ended only 4p/th lower.

Water:

Ofwat announces water bill increases:

Household customers in England and Wales will see an average increase of 5.5% (including inflation) in their water and sewerage bills from April 2006, Ofwat announced today. Customers' bills will rise by an average of £15, from £279 to £294. The above inflation price increases are necessary for water companies to meet the rising costs of delivering safe, clean drinking water to homes, taking away waste water and making improvements to the environment and customer service. The increases are in line with the price limits that Ofwat set in December 2004. Changes to individual customers' household bills will vary according to which company supplies them.

Quote of the week:

As the European Commission launched its green paper on energy policy, commission president Jose Manuel Barroso said – ?A common approach, articulated with a common voice, will enable Europe to lead the search for energy solutions.?

Headine:

Rough outage highlights need for new storage capacity:
The precarious nature of the UK’s gas supply situation was highlighted last week as Centrica Storage revealed that its Rough long-range gas storage facility would be offline until at least 1 May this year. The outage at the offshore facility has not only pushed up immediate short-term gas prices, but has also drawn attention to the limited additional amounts of storage capacity that have been approved for future development, particularly after one possible facility saw its planning application blocked in February while a second application remains tied up in a judicial review.

On 1 March Centrica Storage revealed that bad weather was hampering access to the platform above the Rough storage facility, meaning that it had still been unable to restore full power to the facility almost two weeks after an explosion and fire had taken the unit’s operations offline. With four teams called out to work on the platform, market participants had already speculated that the extent of the damage was worse than first signalled, and this was confirmed in the 1 March statement, in which Centrica revealed estimates that the facility would be unavailable for both injection and withdrawals of gas until at least 1 May. “Our initial assessment of the site has revealed that a significant amount of the cabling in the vicinity of the fire has been damaged and will need to be replaced before normal operations can resume,” it said.

UK News:

Wales has kep part to play in achieving 2010 renewables target:
Wales has the potential to meet up to 18pc of its own electricity demand from renewable energy sources and will play a vital role in achieving the UK’s target of generating 10pc of its electricity from renewables by 2010, energy minister Malcolm Wicks said last week at the latest in the series of public consultation meetings focusing on energy policy. Current renewable generation in the province meets 3.6pc of electricity consumed there, or around 450GWh/yr.
Speaking in Cardiff, Wicks said: “Wales faces the same problems as the rest of the country – the need to reduce CO2 emissions, tackle declining domestic energy supplies against increasing world demand, and secure a diverse energy mix for the future,” he told the consultation meeting. “The energy review seeks to answer some of those problems, but that needs input from all of us. Renewables is one aspect, but there is no single solution, the fact is we need to decide now where Wales will get its future energy supply”.

Next few months critical for ETS:
The next few months will be critical for the long-term success of the EU Emissions Trading Scheme (ETS), according to UK environment and climate change minister Elliot Morley, with a European Commission report on the scheme due to be published in June, and allocation plans for the second phase of the scheme expected to be finalised shortly.
Speaking last week at a Point Carbon conference in Copenhagen, Morley lauded the trading scheme, which he said has led to the development of a vibrant carbon market. But he also warned that for the right improvements to be made in the future, it will be important to understand how the ETS has performed to date. In this respect, the forthcoming commission report reviewing the scheme, which is to be published in June, presents the best opportunity to map out a long-term policy framework for the scheme.

European News:

Wind Energy Association – wind can deliver power demand:
The European Wind Energy Association has launched a new report entitled ‘ Europe’s energy crisis: the No-Fuel Solution’, which outlines how wind can meet over one fifth of Europe’s energy needs. The briefing paper shows that less than doubling the number of turbines currently installed in Europe would provide 11 times more electricity – and deliver over 20pc of European power needs by 2030, even if demand increases 50pc by that time.

Electricity:

Prompt prices last week could not sustain the levels seen in the previous week despite plunging temperatures, with prices softening on healthy supply margins even in the face of consistently high demand (over 56GW), as imports from France provided additional spare capacity.

Gas:

With the long-range gas storage facility at Rough remaining offline, UK gas supplies were put to the test last week, particularly as a result of temperatures dropping below 0°C. But healthy supplies through the Interconnector and increased LNG imports brought down the day-ahead and weekend prices.

Water:

Ofwat investigates alleged false reporting by Severn Trent Water:

Ofwat's investigation found that Severn Trent Water had provided regulatory data that was either deliberately miscalculated or poorly supported. This led to price limits being set for the water company that were higher than necessary, which would have resulted in customers paying £42 million more by 2009-10. This is equivalent to between £2 and £3 each year on an average household customer's bill.
Philip Fletcher, Director General of Water Services, said: "Customers have the right to expect companies to maintain the highest governance standards, including effective processes and controls, at all times. Severn Trent Water's approach fell significantly below these standards.

Quote of the week:

The Liberal Democrats Party released results of its own research which it says shows just how much waste the UK has created from reprocessing since 1976. “Britain is fast becoming the world’s radioactive dustbin,” according to the Lib Dems’ environment spokesman Norman Baker.
“It is dishonest of ministers to state that they do not allow the importation of radioactive waste, but then create tens of thousands of tonnes from imported spent fuel. The cost of cleaning up radioactive waste currently held in Britain stands at £56bn. Whether they intend to return this waste back to its country of origin is a question that the government must answer.”

Headine:

Liberalisation helps keep prices lower – DTI report:
Despite the dramatic rises in UK electricity and gas prices seen during the past two years, a new report by accountant Ernst and Young, prepared for the DTI, concludes that these increases would have been even higher if the old monopolistic structure in energy supply had been retained. In its final report to the DTI on ‘The Case for Liberalisation’, which presents a quantitative and qualitative analysis of energy market liberalisation in Europe, Ernst and Young says there is significant evidence that the benefits of an open market outweigh the costs and that some of the frequently-cited challenges to liberalisation may be overstated.

UK News:

PTF outlines auction approach for UK power market:
With UK electricity market liquidity showing little sign of improving over the last year, the Futures and Options Association’s Power Trading Forum (PTF) has suggested that establishing an auction-based spot market similar to the model seen in several markets across continental Europe could be the key to boosting traded volume in the market. According to the vice president of UK power at RWE Trading and PTF chairman Paul Beynon, there is support among power traders for the development of a liquid and transparent energy exchange that would counteract the power market’s current lack of price transparency and derivatives trading, and have the ability to attract financial players and foster credit-risk mitigating solutions in the market.

A record year for UK wind, but problems mount:
The UK saw a record 446MW of wind capacity installed over 2005, compared with 241MW in 2004, according to the British Wind Energy Association’s (BWEA’s) annual report. The industry is in a period of growth, says the organisation, and in 2005 the UK became one of only eight countries to break the 1GW mark for installed wind capacity. But, warned the association, the headline news may not tell the whole story, and could mask a more tricky time ahead for investors in wind generation.

European News:

European Commission rejects UK allocation amendment:
After several weeks of uncertainty, the European Commission last week formally rejected the UK’s amended national allocation plan for phase one of the EU Emissions Trading Scheme (ETS) on a technicality for a second time – even though the European Court of First Instance had ruled in a hearing last November that the commission should give the changes full consideration. The UK now has two months to decide whether to launch a case against the commission in the European Court of Justice. The news will be a blow for the power sector, which would have benefited from the additional 20mn t CO2 that were proposed in the revised allocation plan.

Electricity:

While day-ahead prices soared by £12/MWh on higher demand, several production outages and reduced gas supplies due to the outage of the Rough gas storage facility, the week-ahead gained £16.50/MWh on forecasts predicting even colder weather from the weekend.

Gas:

UK gas supplies were put to the test last week as the long-range gas storage facility at Rough remained offline, and demand increased on cooler weather. With the current cold snap due to continue over the next week and uncertainty over the restoration of supplies from Rough, the day-ahead jumped almost 20p/th while the week-ahead registered an increase of 21p/th.

Water:

Water scarcity status allows Water Company to install water meters:

Folkestone and Dover Water in Kent has been given the go-ahead to force 65,000 householders to install water meters. Following the ruling, other water firms may now adopt similar measures for their customers. Announcing the move, Environment Minister Elliot Morley said: "Water is a precious resource which we can no longer simply take for granted."

Quote of the week:

Town and Country Planning Association (TCPA) director Gideon Amos urged planners to be ambitious in their pursuit of renewable energy. “Planners have a huge opportunity to become leaders in the field of renewable energy, and to make an enormous contribution towards reducing dangerous greenhouse gases,” he said.

Headine:

Coal making a comeback as gas price spirals:
Coal-fired power generators provided power for more than half the UK’s peak electricity demand this winter, according to energy minister Malcolm Wicks. But despite a moderate resurgence in the sector in the face of spiralling gas prices, current projections in the Energy Policy Review are that coal may only account for 16pc of the UK’s electricity generation by 2020. Nonetheles, coal will occupy an important part of the review’s analysis, Wicks told the Coal UK conference in London last week.
“This winter has demonstrated the value of coal as part of our diverse generating mix,” Wicks said. “Against expectations, and as the price of gas spiralled, coal has been meeting 50pc of average weekday demand, stepping in to keep electricity flowing to our homes, factories and offices. Normally, coal would average only 40pc of supply at this time of year. This flexibility, built on the diversity of our energy sources, is an important strength of our energy market.”

UK News:

DTI issues emissions projections for ETS phase 2:
If the UK continues with existing policies, UK emissions of CO2 in 2010 will fall more than 9 percentage points shy of the government’s intended 20pc cut in 1990 carbon emissions. This is the headline finding of a consultation paper published by the DTI on 16 February that sets out its projections for energy and carbon emissions in the UK, which will form the baseline for the new Climate Change Programme and the Energy Policy Review, and help determine its allocation of emissions allowances for the second phase of the European Emissions Trading Scheme (EU ETS).
The report includes revisions to assumptions on economic growth, future fossil fuel prices and the most recent evaluation of carbon savings from existing measures. A previous report making such projections, which was published in November 2004, became the supporting evidence for the UK’s decision to revise upward its allocation of emissions allowances over phase 1 of the EU ETS, an issue that continues to cause controversy and legal wrangling to this day.

Fresh domestic price rises a ‘bleak day’ for consumers:
“The bleakest day yet for energy consumers.” This is the way consumer body Energywatch described British Gas’s announcement on Friday (17 February) that on 1 March it will implement the largest ever domestic energy price rises seen in the UK. And in what is becoming an increasingly politicised debate, further responses to the price hikes ranged from a criticism of continental Europe’s energy markets to the condemnation of market liberalisation in general.
With wholesale energy prices showing continuing resilience at unprecedented highs, EDF Energy and British Gas both said they would raise prices for domestic consumers last week, following a similar move by Scottish Power the previous week. On 15 February EDF Energy announced a 14.7pc increase in gas bills and a 4.7pc rise in electricity rates for domestic consumers, citing wholesale gas, power and carbon market strength as reasons for the decision.

European News:

Commission publishes annual environment policy review:
2005 was a landmark year for climate change, with the Kyoto Protocol entering into force, the European Emissions Trading Scheme (EU ETS) starting up and global talks on future emissions reduction taking place, the European environment commissioner Stavros Dimas said at the launch of the European Commission’s annual Environment Policy Review last week. And the commissioner is determined to maintain the strong momentum created last year, he stressed, as he set out European environment policy for the coming year. The review document provides an assessment of developments in 2005 and looks to the future, providing an overview of member states’ plans for accelerating economic growth through environmental policy. It identifies 2005 as a “tipping point” in the evolution of EU environmental policy, citing as evidence the launch of the EU ETS and the important role played by the EU at a global climate change conference in Montreal, where it secured consensus to start discussions on future action against climate change post 2012.

Electricity:

In a week of unseasonably mild weather, the electricity and gas markets fell until Wednesday but rallied later in the week when a fire broke out at the Rough long-range storage facility. The fire has now been put out, but uncertainty remains over the restart of that storage unit. And colder weather forecast for the coming week appears set to push prices higher.

Gas:

A second week of milder-than-usual weather sent the spot and day-ahead prices crashing through the first half of the week until the mishap of a fire in the Rough long-range storage facility on Thursday set the prices soaring again. With forecasts predicting colder weather and uncertainty over the restoration of supplies from storage the day-ahead jumped by 17p/th while the week-ahead also registered an increase of 21p/th.

Water:

Co-operate with competitors says Ofwat:

Ofwat's Finance Director Keith Mason gave appointed water companies a warning that they must not delay attempts by potential competitors to enter the industry. The need for existing companies to co-operate and help to make a success of the new competition regime in the industry was the key message to delegates at February's Water Supply Licensing workshop. He said: "Appointed water companies should work proactively with their potential competitors and not delay negotiations with them.”

Quote of the week:

“Countries are not even on track to meet even their modest Kyoto targets, despite growing recognition that we are already facing dramatic consequences as a result of climate change,” said Friends of the Earth international climate campaigner Catherine Pearce. “If we have any hope of keeping temperature increases under control while we still have time, governments around the world must do more to improve energy efficiency, clean up our use of fossil fuels and invest more in sustainable, safe renewables.”

Headine:

Consumer bodies quick to air views on energy review:
Energy-intensive consumers have been quick to voice their opinions on the government’s Energy Policy Review, expressing a cautious welcome of the move to reopen the debate on security of supply, but also warning the government not to back down from tough choices and to ensure that price is a primary consideration in the review. And with the review of climate change policy still ongoing, they also remain intent on ensuring that environmental policies are not pursued to the detriment of economic growth.
Last week Alan Wood, the president of manufacturers’ association EEF, urged the DTI to support British manufacturers in its dealings with other government departments over the much-delayed Climate Change Policy Review. Wood, who is also chief executive of Siemens UK, encouraged the DTI to ensure that business competitiveness is not damaged by the review, in an address made at the federation’s biennial dinner.

UK News:

Smart metering to lower energy costs:
Smart metering could save money for both domestic and commercial energy users and help the UK meet carbon reduction targets, according to a new report from the Energy Networks Association (ENA) published last week. Smart meters, says the ENA, enable power generating companies to more accurately control the flow of energy required, reducing the need for spinning reserve and thus leading to lower generating and system balancing costs, lower carbon emissions and lower bills for consumers.
At present, most meters are manually read every two years and generating companies have little reliable data to accurately predict energy needs, requiring them to have plant on standby so that demand can be adequately met. But smart meters constantly feed back information to generating companies, making load forecasting more simple, and also enabling consumers to manage their energy use more efficiently, according to the ENA.

Drax lobby’s the government:
Drax is lobbying the government in a bid to overturn planned rule changes to the Renewables Obligation (RO). From April the proportion of co-firing capacity that will qualify under the RO scheme is set to fall to 10pc from the current 25pc. Drax argues that such a measure will see an increase in carbon emissions as coal-fired generators scale back the use of biomass fuels. But the government says it is cutting the cap in order to encourage generators to invest in even cleaner technologies such as wind.

European News:

UK renewables lose out to foreign competition:
The UK renewables industry is failing to take advantage of its strong economic position in the European energy market and is losing investment to Spain, Germany and the US, according to the latest Ernst and Young ‘Renewable Energy Country Attractiveness Index’, released on 6 February. Intense overseas competition and grid hold-ups are hampering the development of the UK renewable energy industry, according to the report, with the country continuing to slide down its “All Renewables Index”, which tracks the world’s most attractive national environments for renewable energy. The UK now ranks fourth, having been in the top spot just one year ago. “The UK renewables industry has Europe’s best wind, wave and tidal resources yet it continues to miss out on its economic potential, dropping further down the index, as the debate on whether or not the UK will meet its 2010 targets rages on,” says Ernst and Young’s head of renewable energy Jonathan Johns.

Electricity:

Day-ahead power prices fell sharply last week on softening gas and wide supply margins, closing £8/MWh lower than the previous week. With most power generation units now available to the grid and forecasts predicting a spell of milder weather for the next two weeks, spot power prices are likely to weaken further.

Gas:

Spot prices plunged last week on above-average temperatures for the time of year, although there was a moderate recovery in the middle of last week when the demand outturn exceeded the forecast demand. The system overall remains long and the market appears confident that supplies will be able to sufficiently cover demand.

Water:

Drought sees big rise in waterwise customers:

New figures show people have requested an extra 24,800 free water-saving devices from Thames Water, as a 15-month drought continues across the South-East. If everyone who asked for a device last year installed one in their cistern, this would save over 1.1 million litres per day, which would be enough to supply more than 6,500 people.

Quote of the week:

The Environment Agency relaxed restrictions on generating times for at least two of the UK’s large oil-fired power stations over the winter, due to fears that gas supplies could run out in the event of particularly cold weather. The Environment Agency’s Barbara Young said “These plants have had constraints imposed on them in their environmental permits, including limited generating hours, because they have not invested significantly in improving their environmental control equipment. However, on the basis of the government's request, the Environment Agency is prepared to consider an increase in their generation”