Eneco market reports early July 2021
The last fortnight saw winter 21 electricity touch £100/MWh and gas 100p/therm.
Gas supply fears prompted much of the gains with Russia declining to up supplies to bolster low European gas stocks and unplanned maintenance continuing in Norwegian and the North Sea gas fields. Soaring Asian LNG markets didn’t help by diverting deliveries intended for Europe.
Increases across the wider energy complex supported the rally. Carbon reached 58 EURO/TC02 as the EU fleshed out further regulatory changes. Strong Asian buying and continuing supply issues pushed coal to $87/tonne. Disagreements within OPEC regarding the softening of production restrictions to meet increasing global demand saw oil pass $76/barrel.
In the short to medium term these conditions are likely to persist, particularly if increased temperatures expected in late July cause a surge in cooling demand. Longer term, some experts are predicting a bearish winter with strong nuclear availability and wind generation, and imports starting on the Norway-UK interconnector.
Factors supporting increases:
Supply outages –Norwegian and North Sea gas unplanned production outages are likely to continue for a few weeks yet. Russian gas exports are unlikely to fill the gap.
Gas storage – European storage is at 47.5%, compared to 81% this time last year. Concerns over winter storage capacity are driving current market increases.
Oil markets – Oil is currently trading around $76/barrel as OPEC continues to debate production increases to meet increasing global demand.
Coal – Prices have topped $87/tonne, with reduced supply and high Asian demand.
LNG – LNG deliveries are being diverted by strong buying and higher prices on Asian markets
UK lockdown – measures will be withdrawn on July 19th further boosting demand.
Weather – Temperatures are expected to increase into late July bringing with it low wind generation.
Sterling – has weakened against the dollar amplifying the effects of increases on coal and oil markets.
Factors supporting decreases:
Norway-UK interconnector – expected to be fully operational later this year.
Nordstream 2 – is now due for completion in Q4, following the US dropping its sanctions.
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.
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)