Eneco market reports early August 2021

Energy costs:

Short term markets continued to surge in response to continued supply issues and increasing prices across the wider energy complex. This increased the gap between Winter 21 and seasons from Summer 22 onwards reinforcing backwardation.

LNG supplies are still being diverted to higher priced markets in Asia, with no deliveries to the UK booked for August, and only 1 arriving in July. Further planned and unplanned maintenance in North Sea and Norwegian gas fields, a refusal from Russia to increase gas exports and then a fire in a Gazprom gas processing plant increased supply problems.

Oil markets were volatile, slumping, rebounding, and falling back again as increased production agreed by OPEC battled with economic uncertainty and increasing covid cases in China and the USA. Meanwhile, coal markets increased to $96/tonne due to continued supply issues and high Asian demand and carbon reached EURO 56 with diminished auction volumes available.

Renewable output has been lower than seasonal norms through the year. We should see an increase in the next week taking pressure off gas supplies for power generation.

The last time we saw price increases like this was in 2008 although prices have not reached the peaks achieved during this period. The banking crisis that followed saw prices crash. In 2021, we await the inevitable crash, but when?…

Factors supporting Increases:
Supply outages –Norwegian and North Sea gas unplanned production outages continue but may come back online next week. Russian has declined to step up gas exports. Nordstream 2 is now not likely to be fully operational until Q1 of 2022.
Gas storage – European storage is at 57%, compared to 87% this time last year. Concerns over winter storage capacity continue to drive current market volatility.
Oil markets – Oil is currently trading around $75/barrel but have been volatile.
Carbon – EUETS emissions reached EURO 56/TC02 at the time of writing with reduced volumes available at auction.
Coal – Prices have topped $96/tonne, as supply issues persist around the globe.
LNG –Asian buying remains strong and supplies to Europe limited.

Factors supporting decreases:
Norway-UK interconnector – expected to be fully operational later this year.
Sterling – has been largely flat against the dollar and euro, holding onto recent gains.
Weather – Unsettled weather, lower temperatures and increased wind are expected for the next week or so.
Wind capacity – 2021 has seen a threefold increase in new wind capacity, prompting hopes of a bearish Autumn/Winter.

Non-energy costs:
On the electricity side organisations will see further increases in pass through costs from both government and industry infrastructure providers from 2022 onwards due to pandemic-related demand destruction. Levies normally collected via unit rates have fallen short of expectations and have fed through to further increases in ROs, FiTs, EII and other transportation, distribution and renewable investment charges. In addition to this the Targeted Charging Review (TCR) is coming into effect from April 2022 and is being priced into renewal contracts now. Projections are available on our website via the links below.

What is the Targeted Charging Review (TCR) electricity –
TCR is a change to both Distribution Use of System (DUoS) and Transmission Network Use of System (TNUoS) charges you will find within a supply contract.
DUoS: changes in effect from 01/04/2022 (delayed from 2021)

  • Paid to the associated distributor (DNO), the cost covers installation and maintenance of local distribution networks.
  • At present, a DUoS charge is based on the volume of electricity consumed at site, which has passed through the distribution network.

TNUoS: changes in effect from 01/04/2023 (delayed from 2022)

  • Paid to National Grid, the cost recovers the cost of installing and maintaining transmissions systems.
  • At present, the charge is based on a meter’s share of demand on the network during 3 peak periods, known as Triads. These 3 Triad periods occur between 1st Nov to 28th Feb each year. It’s assessed during this time as demand on the grid is at its highest.

Why the change? A lot of businesses have Triad avoidance techniques in place. During November to February, the 3 largest consuming days will affect a TNUoS charge for a whole year, therefore it pays to be savvy in cutting down consumption on days which would otherwise have been large consuming. Ofgem want to eradicate an unfair grid, therefore both DUoS and TNUoS charges will be veering away from a consumption-based charge to a daily-based charge, determined by voltage type (where you connect to the network), measurement class (Half-Hourly/Non-Half-Hourly), and maximum agreed capacity.

It’s a complex change and difficult to assess the impact on individual meters as suppliers are allocating charges differently. although many are wrapping TCR into increased standing charges. However, to summarise, meters with high capacity but lower usage will be worst affected. For example, a sports stadium will have a high agreed capacity to account for large peaks on event/match days, yet for the most part will have a relatively small usage compared to this capacity. If you want to discuss this further, please call into the office to speak with Abby.

Is your organisation covered by the new Streamlined Energy and Carbon Reporting (SECR) scheme from the Environment Agency?

Designed to replace in part the Carbon Reduction Commitment (CRC) which ended in 2019 and to follow on from the energy savings recommendations generated by ESOS compliance. Note, SECR will cover a wider scope of organisations than CRC and ESOS do. SECR requires all large enterprises to disclose within their annual financial filing obligations to Companies House, their greenhouse gas emissions, energy usage (from gas, electricity and transportation as a minimum), energy efficiency actions and progress against at least one intensity ratio.

If your organisation qualifies, participation in this scheme is mandatory. Eneco Consulting are happy to provide assistance with your regulatory obligations. Full details are available on our website on the link below.

Are you eligible for an EII rebate?

Under current rules, if you qualify at an industry sector level and your business passes the 20% electricity intensity test you may qualify for exemption to CFD and RO charges. Please see the attached Government RO/CFD guidance document and update and give Abby a call on the main number to discuss this further.

Eneco market information early August 2021

Gas and electricity prices from 2009 to date

A copy of our environmental charges and Climate Change Levy rates from 2012 to date: Industry and Environmental Pass Through Charges including CCL p/kWh Updated 21062021

A copy of RO/CFD guidance document: RO_CFD_Guidance_Revised_July_2018

SECR: SECR EA Guidelines

TCR Charges (Targeted Charging Review this will be revised shortly): TCR Charges (Targeted Charging Review)