Informer Issue 548 - 08/02/2022

Volatile energy prices in the UK could continue into the 2030s without Government action to deliver greater resilience, analysts have warned. Research from Cornwall Insight forecasts that from 2026 prices could become increasingly volatile, jumping by £95/MWh between the summer and winter and the seasonal differential will increase to nearly £120/MWh by 2030. It warned a combination of just in time energy procurement, an overreliance on insecure energy imports, increased weather risks and a reduction in nuclear and coal power stations will leave UK energy prices vulnerable to instability into the next decade, unless action is taken. Tom Edwards, Cornwall Insight’s senior modelling consultant, said: “With all the focus of the recent energy crisis being on wholesale prices for the short-term and the imminent price caps, you would be forgiven for thinking that volatile energy markets are simply a problem for the present, not the future. “Looking ahead to the start of the 2030s, we can see that once the nuclear power stations start to retire in greater numbers and the coal fired power stations have closed for good, there is a new period of volatile pricing coming to the UK energy market.” Edwards said increasing the UK’s longer-term energy storage facilities “could go a long way” to reducing seasonal variations, and it will also be important to deliver change on the demand side, with investment in energy efficient housing and electric vehicles having the potential to considerably reduce the level of power plant capacity needed. Read more

Corporations bought a record 31.1GW of renewable energy through power purchase agreements (PPAs) in 2021, up nearly 24% from the previous year’s record. Research from BloombergNEF (BNEF) showed big technology companies were a driving force behind the rise, collectively signing over half of the deals. Total signed volumes were equivalent to more than 10% of all the renewable energy capacity added globally last year, showing the impact corporate sustainability pledges are having on clean energy build. Kyle Harrison, Head of Sustainability Research at BNEF, said: “It is no longer a matter of whether corporate clean energy procurement will grow each year, it’s a matter of how much. “More corporations are making new sustainability commitments, costs for renewables are plummeting and regulators around the world are slowly coming around to the fact that clean energy might be a silver bullet in the decarbonization of the private sector.” Read more

Energy Minister Greg Hands has denied that the Government has gone “too far with renewable energy” as part of a series of social media posts aimed at dispelling myths circulating over high energy prices. Hands published a series of tweets addressing what he said were misconceptions about the causes and solutions to the current price challenges, including claims that growth in renewable energy is partly to blame. “Gas is expensive and the price of renewables is falling. We need to generate more clean, secure and affordable power in this country so we’re less exposed to volatile gas prices set by global markets,” he pointed out. The MP also said it was a myth that the UK is “too reliant on Vladimir Putin for gas”. “Unlike other countries in Europe, the UK has no direct dependence on Russian gas supply. Less than 3% of Britain’s gas was sourced from Russia in 2020,” he said, Hands also challenged claims that “we need more gas storage”. “Recent international gas market activity has shown that domestic gas storage capacity has had little bearing on the price of gas. The UK’s diverse sources of gas supply mean we don’t rely on storage,” he said. Extracting more North Sea gas would also not lower prices for UK consumers, he said. “We are committed to North Sea gas production for security of supply. However, UK production isn’t large enough to materially impact the global price of gas.” Read more

Ofgem is proposing more frequent updates to the energy price cap to more accurately reflect the volatility being seen on gas and electricity markets. The plans were announced in the wake of the 54% increase announced to the cap from April, which followed a 12% rise in October. Ofgem is proposing to increase the frequency of the price cap updates from twice a year to quarterly. It is also consulting on additional measures including reducing from two months to one month the advance notice Ofgem gives to suppliers of the updated price cap level before it comes into effect. The consultation closes on 4 March. In response to the April price cap hike and plans for a rebate scheme for consumers to soften the blow, Energy UK’s chief executive, Emma Pinchbeck said: “We very much welcome the support for customers announced by the Chancellor, but with no sign of wholesale prices falling and bills likely to remain high through the autumn, our concern for millions of customers, as well as the stability of the retail sector, remains.” Read more

Changes proposed to the CfD scheme would help lower generation costs and improve benefits for local suppliers from major renewable projects, according to the Government. A consultation launched by BEIS is mainly looking at the supply chain plans which developers wanting to build projects of 300MW or more must apply for before bidding in an auction. Possible changes include interviews with applications to better understand their supply chain plans, extending the policy to support emerging technologies such floating offshore wind projects ,and strengthening disincentives for non-delivery. BEIS said the aim of the supply chain policy is to improve the competitiveness, productivity and capability of generators’ supply chains, and support local supply chains in keeping with the government’s Build Back Better agenda. It said the changes would make the CfD scheme “more adaptable and forward looking”. The consultation closes on 15 March. Read more