Five things we learnt from Energy Spectrum 668

With five of the Big Six having published their segmental accounts – breakdowns of financial performance and costs across generation and supply business areas – it is readily apparent that, in general, margins are on a downward trend. In this week’s Energy Perspective, we suggest that, while some suppliers were losing money supplying some fuels in 2016, but still – for the Big Six at least – able to post record domestic energy supply profits, the picture just two years later is much bleaker. Further, the somewhat frank language laid out in parent company reports doesn’t leave much room for optimism, with all citing the price cap and competition squeezing profits.

The UK’s latest and third Contracts for Difference allocation round (AR3) opened on 29 May and, with a limited budget for the round, competition between projects is likely to be fierce, especially from offshore wind providers. We look more closely at AR3 in this week’s Policy section.

On 24 May, Ofgem published its sector specific methodology decision for the RIIO-2 price controls starting in 2021. In this week’s Regulation section, we state that while there is a lot of new thinking around driving innovation, responses to vulnerability, and stimulating environmental measures, the immediate media focus has been on how far allowances will be reduced against current controls and the estimated £6bn saving. We will be looking into Ofgem’s position in more detail soon.

A UK Energy Research Council briefing paper on the flexibility of Britain’s gas networks offers an interesting perspective on a new area that will need to be considered given the looming issue of heat decarbonisation and the repurposing of the gas networks. We look more closely in this week’s Industry Structure section.

In this week’s Nutwood, our analyst Joe Camish discusses several notable unplanned outages on the NEMO Link interconnector during May. There are, he suggests, some important learnings for market participants.

Related thinking

Home supply and services

Reforming Energy Bills: What’s on the Table?

There has been much speculation in the energy industry over what reforms to household energy bills could potentially be introduced, particularly with Ofgem due to announce its Q3 (July – September) 2024 Default Tariff Cap figures on Friday (24th). With so many areas under review, we’ve put together an overview...

Regulation and policy

Government Announces Record Budget for Contracts for Difference Allocation Round 6

The government has released the budget and reference prices, along with the auction parameters, for the upcoming Contract for Difference (CfD) Allocation Round 6 (AR6). As recently reported, there were considerable questions outstanding about the parameters which will be used in the auction and significant pressure was placed on AR6...

Low carbon generation

Latest developments in the TPI space

We recently published our 2023 Annual TPI report which provides an independent review and analysis of the market for TPIs, and the services provided by them. The report also looks at the current challenges and opportunities for TPIs, such as regulatory changes, competition with suppliers, and diversification of services. 2023...

Low carbon generation

Learning curves and the many moving parts of the CfD Auctions

Learning curves are an important part of the toolbox of energy system modelling, representing the benefits of learning by doing and the economies of scale. The learning rate describes how as production doubles capacity cost reduces, so a learning rate of 15% would imply that as production doubles, costs would...

Regulation and policy

What’s going on with REGOs?

Renewable Energy Guarantees of Origin, more commonly referred to as REGOs, are certificates issued to accredited renewable generators for every MWh of electricity they produce over a year period. The initial intentions of these certificates were to provide suppliers a means to prove the level of renewable generation they received...

Home supply and services

Ofgem strives to improve consumer experiences across both the domestic and non-domestic sectors

Over the last week, a number of anticipated publications were issued by Ofgem that hold the potential to make a significant change to the requirements on both domestic and non-domestic suppliers. The findings of Ofgem’s non-domestic market review were revealed, alongside a policy consultation on the options available to address...

Energy storage and flexibility

Waiting to connect: the problems and solutions for network connection queues (Part 2)

Network connection queues continue to be a notable topic of interest as many generators face significant delays to project development – an issue that is directly conflicting with net zero ambitions and recent focuses on strengthening domestic energy supplies. In Part 1 of our two-part series on connection queues we...

Home supply and services

Addressing consumer harms in the non-domestic market

In recent months, Ofgem has shone a light on areas across both the domestic and non-domestic market where suppliers could improve their practices for customers and go beyond what they are obligated to do in the licence conditions. In a time of significant and extended volatility, the regulator has brought...