Energy & Carbon Management newsletter - June 2012

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Telephone 01293 651218 Email [email protected] Website www.energyandcarbonmanagement.comEnergy and Carbon Management Limited Longley House, International Drive, Crawley, West Sussex, RH10 6AQ © 2012 Energy and Carbon Management Limited

Energy Newsletter / June 2012 of 3Welcome to Energy & Carbon

Management’s Newsletter MARKET BRIEFElectricity, Gas and Oil have continued their recent decline with Electricity and Gas edging nearer to where their individual market floors are perceived to be. Relief over the pro-Euro currency vote in the Greek elections has quickly faded amid signs of persistent troubles for the Eurozone, as world leaders accept the reality that Europe’s debt and political crises are far from over. Greek Conservative’s who support a bailout for the struggling nation, formed a coalition government but fell short of an outright majority needed in parliament. Stocks have fallen sharply in Italy and the cost of borrowing for Spain reached Euro era high amid investors’ fears that it would become next Eurozone nation to request a full-fledged government bailout. Our advice would be to fix all energy contracts that renew this year as soon as possible. The majority of contracts are available at a yearly low, or even two yearly on some products. Locking out two or three year deals would be prudent due to the relatively small premiums currently on the second and third year of contracts. Depending on clients individual appetites for risk, the less risk adverse may wish to hold off as prices fall, in order to find the market bottom. ANNUAL REVIEWAnnually Electricity, Gas and Oil are all recording significant decreases of 18.54%, 10.86% and 13.20% respectively. Recent economic data which had weakened, coupled with growing concern about the Eurozone’s sustainability has had a bearish sentiment on prices. Global Markets for Gas, Oil, Carbon and Equities have plunged lower subsequently pushing Electricity lower. The Power System in the UK has remained robust amid recent warmer weather and continued reliability, with any forecasts for warmer temperatures meaning prices could fall further.

MONTHLY REVIEWElectricity, Gas and Oil prices have continued to fall in the month-on-month comparison for the third month in succession. With all three commodities continuing their recent downtrends, each have broken the previously established support points and are now finding new levels of resistance to further downward movement.

PRICES COMPARED TO THIS TIME LAST YEAR

GASELECTRICITY

ANNUAL REVIEW

Electricity (£ MW) £57.50 £46.84

Gas (ppTh) 69.05p 60.425p

Oil ($ Brl) $95.93 $83.27

17/6/

11

18/6/

12

OIL

-10.86%-18.54% -13.20%

PRICES COMPARED TO THIS TIME LAST MONTH

GASELECTRICITY

MONTHLY REVIEW

Electricity (£ MW) £47.675 £46.84

Gas (ppTh) 61.55p 60.425p

Oil ($ Brl) $91.80 $83.27

18/5

/12

18/6/

12

OIL

-1.83%-1.75% -9.29%



OTHER MARKET NEWS

STATEMENT BY ED DAVEY, SECRETARY OF STATE, ENERGY & CLIMATE CHANGE ON THE ENERGY EFFICIENCY DIRECTIVE“I greatly welcome the agreement reached on the Energy Efficiency Directive and want to congratulate the Danish Presidency on their successful handling of a complex and rapidly moving negotiation.

The deal which has now been agreed is good for the UK and for the EU as a whole and maintains the EU’s position as a global leader in tackling climate change.

It signals a step change in energy efficiency and for the first time sets legally binding energy saving targets, which at a time of economic challenge will help improve the EU’s competitiveness and boost growth. This Directive is also testament to how the EU can work together to tackle major challenges and make a difference.

The UK played a central role in not only brokering a deal but also increasing its ambition. Our experience of our own energy efficiency policies has helped ensure that the Directive promotes practical and cost-effective action that will deliver real savings and that it strikes the right balance between prescription and the flexibility necessary to allow for national circumstances and for innovative policy approaches.

The UK supported the move to ambitious binding energy saving targets throughout the negotiations and played a crucial role in defining this target so that progress can be clearly and effectively demonstrated. We have also worked hard to ensure that the target provides sufficient incentive for longer term measures that will continue to deliver into the future.”

UK SOLAR INDUSTRY SIDESTEPS TARIFF CUT TO BUILD BIGGEST PLANTS Solar-energy companies are applying to build the UK’s biggest projects and sidestep a cut in subsidies aimed at limiting new plants by relying on a decade old incentive program and tumbling panel prices.

The market for utility-scale projects has looked far less attractive since the UK lowered feed-in tariffs paid to generators in August, may as a result see as much as 600 megawatts of plants built through April, the Solar Trade Associated said, equivalent to four times the level of such installations now operating in the country. There are now a number of companies proposing plants using Renewable Obligation Certificates first introduced in 2002 and previously only employed in generation such as wind farms. The use of this incentive program, which gives lower returns compared with the tariffs they used to get, encourages developers to build bigger for economies of scale. The ROC’s, which only make sense for solar companies because the price of panels have fallen by half, also aren’t limited to facilities of 5 megawatts or less like the feed-in tariffs. GOVERNMENT DENIES RIFT OVER WIND POWER SUBSIDIESGovernment and industry figures have moved to play down fears that subsidies for onshore wind and solar panels could be axed, after a senior minister responded to an anti-wind farm campaigner by suggesting clean energy incentives will be phased out by 2020.

Cabinet Office minister Oliver Letwin wrote to Terry Stewart, president of the Dorset branch of the Campaign for the Protection of Rural England (CPRE), expressing his opinion that dedicated financial support for renewable energy would be removed by the end of the decade as the cost of clean energy technologies fall.

Energy Newsletter / June 2012 of 3



According to an email seen by the Sunday Telegraph, Letwin wrote that: “I anticipate that subsidies for both solar photovoltaic and onshore wind will come down to zero over the next few years and should have disappeared by 2020, since both of these forms of energy are gradually becoming economic without the need for subsidies.”

Letwin’s words are said to have irritated energy and climate change secretary Ed Davey, according to reports in the Financial Times, after he last week set out his backing for wind energy.

Davey is preparing to confirm new subsidy levels for renewable energy projects under the Renewables Obligation (RO) support scheme, following a consultation on whether these should be reduced by more than 10 per cent for the period between 2013 and 2017.

He told the Financial Times that larger cuts, such as the 25 per cent reductions for onshore wind reportedly recommended by chancellor George Osborne, would unnerve investors.

“If we send signals to investors and to companies that we’ll play fast and loose, and we won’t go where the evidence is or we won’t stick to our word, what will happen? The cost of capital for investment in the UK will go up, so there will be a political risk premium,” he said.

“We absolutely have to be green in this government, and being green means being straight with investors and companies and not messing them around.”

Energy Newsletter / June 2012 of 3

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Energy & Carbon Management newsletter - June 2012

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