UK Power Price to Double German on Wind, Solar: Energy Markets

June 15, 2013 by  
Filed under Green Energy News

Electricity in the U.K. is poised to
cost almost twice as much as in Germany within two years as
Britain lags behind in building solar and wind plants.

U.K. power will be 85 percent more expensive than in
Europe’s biggest energy market in May 2015, according to data
compiled by Bloomberg. That compares with an average premium of
17 percent over the past five years and 80 percent today, data
from Marex Spectron Group Ltd., a broker in London, show.

While Germany is seeking to consolidate its status as
Europe’s biggest producer of wind and solar power by boosting
its share of renewables-sourced energy to 35 percent in 2015
from 22 percent last year, the U.K. is targeting 15 percent from
11 percent over the same period. Statkraft AS is closing money-losing gas-fed plants in Germany, while Macquarie Group Ltd. (MQG) and
Vitol SA are buying British power stations, betting on gains of
as much as 19 percent in U.K. prices by 2016, according to
Societe Generale SA.

“The U.K. has built significantly less renewables to
date,” Ilesh Patel, a partner at Baringa Partners LLP, a
consulting firm that counts EON SE and Electricite de France SA (EDF)
among its clients, said in a phone interview from London.
“Germany has been on a fast-track wind and solar plan.”

U.K. power will cost 53.16 pounds ($83.12) a megawatt-hour
in May 2015, compared with 33.21 euros ($44.21) in Germany,
according to fair value calculations on Bloomberg as of 12:47
p.m. in London. The British premium has averaged 8.51 euros over
the past five years, 21.49 in 2013 and was at 24.48 euros today,
Marex Spectron data show.

Consumers Pay

The gap may widen in coming years, according to Societe
Generale
. German next-year power will cost 39.70 euros a
megawatt-hour in 2015, 6 percent less than the average during
the first three months of 2013, as U.K. prices rise 11 percent
to 59.40 pounds, Paolo Coghe, an analyst for the bank in Paris,
said in a June 12 report.

“High generation levels from zero variable-cost
technologies, such as solar photovoltaic and wind, are damping
German power prices and hurting plant revenues by reducing the
amount of time a plant might otherwise be called upon to
operate,” Coghe said.

The lower German prices are no comfort for the 40 million
households in Europe’s biggest economy. Retail prices have risen
17 percent since the end of 2009, according to Eurostat data
compiled by Bloomberg Industries. The nation has the highest
residential costs in Europe after Denmark as utilities pass on
the costs of solar and wind generation, Jonathan Lane, head of
consulting for power and utilities at GlobalData, a London-based
researcher, said by phone on June 12.

‘Warning Signal’

German Chancellor Angela Merkel’s government should take
steps to contain the cost of the switch to renewables as
households have so far borne the brunt through power bills
inflated by renewable-power subsidies while industrial users
have been shielded from the increased costs, the International
Energy Agency
said last month.

“The fact that German electricity prices are among the
highest in Europe, despite relatively low wholesale prices, must
serve as a warning signal,” Maria van der Hoeven, the Paris-based adviser’s executive director, said May 24.

U.K. rates have risen more steeply than Germany’s since
2011, according to Eurostat. The cost of meeting renewables
targets has contributed to rising bills, Centrica Plc (CNA), Britain’s
biggest residential energy supplier, said in its full-year
results on Feb. 27. The company has more than doubled prices
since 2004, according to data compiled by uSwitch, a London-based consumer group.

Plant Closures

Environmental policies such as feed-in tariffs and
renewables-obligation certificates accounted for 9.4 percent of
Centrica’s U.K. consumer rates last year. The Windsor, England-based utility said in October the policies would add an extra 40
pounds in 2013 after it raised average household prices by 6
percent, or 80 pounds a year.

U.K. electricity margins, the amount of spare generation
capacity available at times of peak demand, may fall to 4
percent in 2015 from 14 percent, the U.K.’s Office for Gas and
Electricity Markets, said in October. Coal-fed generation,
including EON’s Kingsnorth plant and RWE AG (RWE)’s Didcot-A unit have
closed earlier than the 2015 deadline under the EU’s Large
Combustion Plant Directive.

Statkraft, Norway’s biggest utility, will mothball its 510-megawatt Landesbergen gas-fed plant in Germany from July 1, the
company said on June 6. The Oslo-based company shut its Emden
plant last year.

Macquarie, Australia’s largest investment bank, bought the
540-megawatt Baglan Bay and 819-megawatt Sutton Bridge gas-fed
power stations in the U.K., the Sydney-based company said in
January. Vitol, based in Geneva, bought the 1,220-megawatt
Immingham plant, it said May 10.

Improving Outlook

“The outlook for gas generation in the U.K. is set to
improve over the next five years,” Brian Potskowski, an analyst
in London at Bloomberg New Energy Finance, said June 12 by
phone. “We will continue to see interest in assets.”

Profit from burning the fuel has dropped for three years
and closed at minus 56 pence a megawatt-hour yesterday,
according to Bloomberg calculations based on next-month power
and gas costs and emissions prices.

Britain is encouraging renewable energy by setting a floor
price for emissions costs, making it more costly to run fossil
fuel-powered stations. The U.K. makes utilities pay about 18.08
pounds per metric ton of carbon dioxide emitted for the year
through March 2016, the Treasury said in its March 20 budget.
That’s in addition to a European carbon credit price of 4.92
euros a ton for December 2015 on the ICE Futures Europe
exchange.

‘Very Profitable’

The floor price will help keep power costs high relative to
continental Europe and boost baseload, or round-the-clock
imports, James Cox, a principal consultant at Poeyry Oyj, a
Helsinki-based adviser to governments and utilities, said May 8
by phone.

“In three to four years you would expect interconnectors
to be importing baseload into the U.K.,” he said. “It’s going
to be a very profitable time for anyone that has a power cable
from the U.K. to anywhere else.”

To contact the reporter on this story:
Rachel Morison in London at
rmorison@bloomberg.net

To contact the editor responsible for this story:
Lars Paulsson at
lpaulsson@bloomberg.net


Enlarge image
U.K. Power Price to Double German on Wind, Solar

U.K. Power Price to Double German on Wind, Solar

U.K. Power Price to Double German on Wind, Solar

Chris Ratcliffe/Bloomberg

U.K. power will cost 53.06 pounds ($83.11) a megawatt-hour in May 2015, compared with 33.30 euros ($44.41) in Germany, according to fair value calculations on Bloomberg as of 8:40 a.m. in London.

U.K. power will cost 53.06 pounds ($83.11) a megawatt-hour in May 2015, compared with 33.30 euros ($44.41) in Germany, according to fair value calculations on Bloomberg as of 8:40 a.m. in London. Photographer: Chris Ratcliffe/Bloomberg

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