Between Wednesday and Thursday, we saw a major crash in gas prices of almost 15%, dropping by 17.68p/therm to 104.2p/therm. On Wednesday afternoon market data began to show gas flows through the controversial gas pipeline Nord Stream 2 (even though it is not operational until Q1 2022). This led to a large sell off across the NBP curve, the UK gas market, as it suggested that the European gas situation would be drastically improved way ahead of schedule.
This data was soon clarified as an error, which led to the market bouncing back slightly, until a further sell off spurred by news that the Nord Stream 2 pipeline will deliver 5.6 billion cubic meters of Russian gas this year, which is just under 10% of its capacity. This all coincides with the fundamental gas picture progressively loosening recently due to improving storage levels and injections ramping up over the last couple of weeks. But, it is important to note that storage levels are still below 5 year averages across the UK and Europe. This led to losses, although not as severe, across power prices and carbon prices with UK Winter 21 baseload dropping £11.85/MW to £104.50/MW, and the UKA dropping by £0.70/mt to £49.30/mt.
The government has published its plans for a UK wide hydrogen economy. There are two types of hydrogen: Green Hydrogen which extracts hydrogen from water and Blue Hydrogen which uses gas in the extraction process. Green hydrogen is considerably better for the environment than current gas generation, however, there are questions regarding Blue Hydrogen’s low carbon credentials. The governmental document details hopes to attract at least £4bn of investment to the hydrogen economy by 2030 to continue the transition to a net zero economy. The hope is that these investments will lead to around 5GW of hydrogen production by 2030, and cover 20-35% of the UK’s energy consumption by 2050.
In another governmental announcement, there is going to be a review into how energy retailers market their ‘green’ tariffs to customers, following increasing pressure from within the renewable energy market. There are approximately 9 million British households that are on energy products labelled as either ‘100% renewable’ or ‘green’. This consumer option is growing rapidly with more than half of all new deals launched by energy providers now claimed to come with environmental benefits. The issue with this is that many of these ‘green’ products still use a proportion of fossil fuel, which is being offset through a green certificate scheme and then labelled as green. This is achieved by ‘selling on’ green certificates in the form of Renewable Energy Guarantee of Origins (REGO), which is given to a renewable generator per unit of renewable power generated. However, REGOs can also be sold separately, meaning an energy company can buy a REGO and then ‘offset’ the fossil fuel proportion of the energy sold and count it as green. This greenwashing and lack of transparency is what the government is keen to crackdown on.
It has been a very busy quarter across the board, with plenty of developments and insights to include in this quarter’s market report. Some of these we had predicted, while others have been unexpected.
– Gas supply concerns grow for the UK and further afield as lower than usual temperatures and politics ‘strangle’ supply.
– Lower than expected renewable generation and cold temperatures created a volatile power market, leading to high system prices.
– Dynamic Containment auction volume filled up quickly this quarter and Limejump bid in Europe’s largest battery.
– A flourish of insightful reports from regulators and National Grid published this quarter, including National Grid’s Future Energy Scenarios, are all highlighted in this report.
We see wind’s dropping below seasonal expectations for the whole week, whilst solar generation sticks around the seasonal norms. There is improved availability across Biomass, Nuclear and CCGT’s meaning the generation stack is very healthy for next week.