SmartPower News, Events & Videos

April 2018

The Irish electricity market will undergo a major change in May 2018, moving from SMP pool pricing to a new I-SEM method that mimics a more ‘financial-traded style.’  

I sent out a special report to SmartPower procurement group members. I am not planning on sending out this report to a wide distribution list. However, if you would like a complementary copy then please email me and I will send you on a copy privately.

June 2018

In order to mix things up a bit with the newsletter I posted a video earlier this month on solar power. Please click link to watch.

or cut & paste: https://www.youtube.com/watch?v=X6RPKvDLWNw

A number of new business opportunities are setting up in the Irish market for clients with large electrical loads in the coming year to offer DS3 services to the grid. Suitable clients be able to bid for six-year contracts providing frequency response and reserve services in September when transmission system operator EirGrid will launch a new procurement process. I will cover more about this either in the newsletter or in video’s as we go forward.

May 2018

We have a very complicated set up for electricity & gas prices this year. On the one hand we were expecting the I-SEM electricity trading market to launch this month and we where holding off on any procurement recommendations until we saw what effects this would have on prices. Now this has been pushed back 6 months with little notice. We also have had a very cold winter which has hammered gas storage supply and as a result pushed gas prices much higher. Gas prices are still not coming down as they stay stubbornly high due to the need to replenish depleted storage.  Indeed, May-18 gas reached its highest price since February 2017, hitting 52.2p/th.  To add to this we are also seeing higher oil prices due to Middle East political tensions which also tend to pull gas prices higher.

In the graph below, you can see average gas prices traded in the UK p/Therm. Prices where v low in 2016 and ‘lowish’ in summer 2017 but have climbed from there.

 

 

So where do we go from here? Well it needs to be borne in mind that nobody can predict the future with variables like the weather and the middle East involved. To add to this, I-SEM is another unknowable though we have a new launch date now in Oct-18.

For those of you who need to buy electricity and gas soon, fixed contracts look v expensive right now. We would not recommend those unless certainty is much more important to you than price. Our preference is to wait out the high prices and wait to see value in the market before looking at fixed contracts. If we see a big dip in prices this summer (a big if) then we would be interested in looking at fixed rates then.

 

March much colder this year than 2017

‘Degree days’ – In Ireland are usually set at 15.5C and is the temperature below which buildings need to be heated. The figure below give you a good indication why your heating bills are much higher this year than last. It has been a double whammy for clients this year, higher energy rates and the need for more heating.

Met Eireann figures for Dublin airport,

 

                                                       Jan         Feb        March   April

2018 Avg temp Celsius                   5.3          3.4          4.3          8.2

2017 Avg temp  Celsius                  5.7          6.2          7.7          8.0

2018 Degree days                          316         339         348

2017 Degree days                          304         259         243         224

 

The remarkable fall of coal.

From late evening on the 5th April, the UK saw its second ever 24-hour period without any coal-fired power being produced since coal-fired generation started in the 1880s.

The UK has had an energy revolution in just 5 years. Coal is down from 42% to 7%. Renewables are up to 23% from 10%. Non-fossil fuel generation up to 47% from 30%. A switch to Gas is the main driver behind the fall of coal but wind power/solar have also made a huge difference. Total electricity consumption is also down due to improved energy efficiency of which LED’s have been a major contributor.

I am sure many of the readers of the newsletter are old enough to remember the famous miners strikes in the UK when Prime Minister Margaret Thatcher defeated the unions led by Arthur Scargill.

It was a defining moment in British industrial relations, and its defeat significantly weakened the trade union movement. The strike kicked off when the government announced on 6 March 1984 its intention to close 20 coal mines, revealing a longer term plan to close over 70 pits. Scargill claimed that the government had a long-term strategy to destroy the industry by closing unprofitable pits, and that it listed pits it wanted to close each year. This was denied by the government at the time, although papers released in 2014 under the thirty-year rule suggest that Scargill was right. From the graph below you can see that at one stage 1.2m people where employed mining coal in the UK.

 

Record breaking Saudi solar farm announcement

Saudi Arabia backed by the Softbank group announced that it was going to build a new solar farm of 200GW size that would be more than 100 times bigger than any existing solar farm. To put this in perspective, this would have the output at about 36 times average daytime Irish electricity load. It may be one step closer to building a Supergrid  to get around one of the main problems with renewables – intermittency of supply. I will produce a video on the Supergrid soon to explain more.

 

Are big companies like Google and Apple really on 100% renewable energy.

You may have seen announcements from big companies such as Google and Apple that they now run on 100% renewable energy. Is this accurate? Well not really. They still run on the same electricity supply as the rest of us but they rely on what is called Power Purchase Agreements, or PPAs in order to make this claim. This allows them to say they are buying 100% renewable energy by matching their electricity consumption with renewable energy purchases through PPAs. But there is obviously a difference between being powered by renewable energy sources — which would essentially require onsite generation wherein renewable electricity generated from a project is actively directed through a separate connection point to the source — and matching electricity consumption with renewable energy PPAs. Nevertheless, it is a positive development. For example, Google’s PPAs have already led to over $3 billion in new renewable capital investment around the world.

The next stage now is that some renewable energy companies will start to offer PPA’s to smaller companies than the tech giants. Vattenfall in the UK for example has started offering Onshore Wind PPAs To British Businesses From As Low As 1 Megawatt.

 

World energy outlook

Oil prices have been acting strongly due to a combination of  Geo political risks (Venezuela, Iran, Syria etc) and the OPEC cuts finally getting traction. The cold weather everywhere also pushed energy demand higher around the globe.

 

Irish Wholesale electricity prices

The avg SMP price in April was 5.7 c/kWh thankfully down from the v high March figure of 7.06 c/kWh. See green 2018 line in graph below. You can see how prices where v low historically in 2016 but right now SMP has climbed back into the middle of its range. Hopefully, we will see better temperatures soon so gas prices can ease back and pull the electricity price with it.

 

March 2018

As I write its v cold outside (by Irish standards) and in this edition of the newsletter, I want to look at the reason why and also the effect on Irish energy prices.

This has been a colder than normal winter and not just in Ireland. My brother lives in Boston and he has seen some huge snowfalls this winter. It even snowed in Tallahassee, Florida, for the first time in 28 years. A temperature of −26 °C took place in Omaha, Nebraska on Dec 30, 2017 that was lower than the previous record set in 1884. At the winter Olympics in Korea it has been the coldest winter in 40 years.

To help get a practical measure of how colder it has been this year, heating engineers tend to use a measure called – ‘Degree days’. In Ireland this is usually set at 15.5C and is the temperature below which buildings need to be heated. According to Met Eireann figures for Dublin airport, Dec 2017 had 317 degree days vs 272 in 2016 and 213 in Dec 2015.  The numbers for Jan 18 where 316 vs 304 (2017) and 303 (2016).  Feb numbers are not out yet but they should also show a big difference.

 

Why the colder weather?

Most winters super cold air is normally locked up in the Arctic in the polar vortex, which is a gigantic circular weather pattern around the North Pole. A strong polar vortex keeps that cold air hemmed in. But some years this vortex weakens like a dam burst effect and the cold air heads south like that indicated in the diagram below (referred to as Rossby waves by meteorologists).

Usually the jet stream marks the boundary between the cold polar air to the north and warmer air to south and sometimes you will hear reference in the media to the jet stream moving south.

How can it be so cold if global warming is underway?

Arctic air is still bitterly cold, so atmospheric changes that allow that air to drop south will continue to lead to such sharp temperature drops. And don’t confuse weather — which occurs over a few days or weeks at a regional level — with climate, which spans over decades with many complex inputs.

Historically, long cold spells are not unusual. If you look back at Irish history, there have been many periods of cold weather often with catastrophic effects. Before the Potato famine (1845-1852), there were many famine periods in Ireland caused by prolonged cold weather. The Irish Famine of 1740–1741 (Irish: Bliain an Áir, meaning the Year of Slaughter) was estimated to have killed at least 38% of the 1740 population of 2.4 million people, a proportionately greater loss than during the worst years of the Potato Famine. The cold and its effects extended across Europe, but mortality was higher in Ireland because both grain and potatoes failed.

 

Effect of the cold weather on short term Irish energy prices  

Last Friday we did see a spike of UK gas prices to 71 pence/therm which was the highest level in four years. However, prices started easing on Monday as gas supplies are still plentiful in Europe. Confidence in supply is still strong and once we get past this cold snap, we are expecting prices to ease.

We also saw a pick up in electricity prices near the end of the month in line with the gas price (to date data is only available to 22nd Feb).   On a positive note it has been a v windy start to the year and as a result, SMP prices are a little lower this year than over the same period last year  (Jan, Feb).

 

World energy outlook 

In an interesting geopolitical development, work has begun on the planned ‘Power of Siberia’ pipeline which will allow Russia to sell previously stranded gas reserves to China and also move them to an LNG plant on Russia’s east coast. The 3,968 km pipeline will be the largest fuel network in the world. Longer term the Russians will then be able to connect up the pipeline with Europe also and chose to sell their gas either to Europe or to the East.

Another massive pipeline – Nordstream 2 is also under construction between Europe and Russia. Currently, over almost 40 percent of the gas consumed in the EU originates from Russia, making Moscow the biggest supplier, followed closely by Norway and Algeria (though no Russian gas comes to Ireland). There are political critics of the project arguing that the deal will give Moscow unwanted influence.

Oil prices have been pulling back lately (by about 10% from Jan highs) as US oil output continues to expand.

 

Irish wholesale electricity prices 

The SMP price in Feb (to the 24th) was 5.7 c/kWh a decrease from the Jan price of 5.36 c/kWh due to the reasons given above.

I-SEM

There have been developments in this area since we last wrote about it mainly around capacity auction levels. Wind penetration continues to hurt thermal plant margins and I-SEM auction levels reflect this.  Its very technical stuff though and I suspect most readers of the newsletter are more interested in the bottom line – such the direct effect on electricity prices. Its too early to tell since I-SEM has not kicked off yet. As we get a clearer picture on what is likely happen to prices, I will update you.

I would encourage you to get expert advice before you make any decision about your contracts for the year going forward. (By expert I don’t mean the clueless call center people who call around offering to buy electricity & gas for people).

February 2018

You may have been reading about the proposed closure of Huntstown power station in Dublin (my business partner Fergus used to work there). This was because Huntstown failed to secure capacity (read active standby) payments at the right price for the plant. The auction cleared at 41,800.00€/MW. Alongside an application for a 100MW battery we think this may be an important signal for the future of the grid in Ireland and the pivot towards a renewable grid.

I am sure many of you have also read about Elon Musk when he promised Tesla could build and install a 129 megawatt-hour grid storage battery in South Australia in 100 days or less.  If Tesla failed to meet the deadline, the battery would be free. In fact, Tesla beat its own deadline, weeks ahead of schedule. This now actually looks like it set an important precedent paving the way for other battery storage projects worldwide. Recently, the battery was praised with averting a major grid incident after a coal power station tripped suddenly.  Last week the company (Neoen) operating the battery was reported to have made about $1 million in 2 days, which has been a serious wakeup call to detractors who had assumed that the Tesla battery was just a Elon Musk publicity stunt with little financial return.

In Ireland, a company called Greener Ideas Limited has proposed a 100 megawatt Battery Energy Storage System plant at the IDA Park, Purcellsinch, Kilkenny. If approved, this will be the largest battery to date in Europe.

This has important implications for more wind power integration into the Irish grid – already among the highest in the world with another new record this January .

 

How does a grid battery work?

Batteries do not work by supplying power to the grid as a substitute for say a coal plant when needed as 100MW would only work for a few minutes. The way it works is quite complex, but I will try to simplify it here.

The principal cost benefit of battery storage is not so much the price of the battery as it is the savings realized from not building and operating so-called “peaker” plants that operate only a few hours a day. Even though its only 100 MW, (mid-day the Irish grid runs around 5000 MW) it has an outsize effect on stability. It counteracts the tendency of the system to destabilize and go out of frequency or voltage range. Other resources can respond later, but the instant surge from a battery helps when the other sources take too long to respond.

 

The problem with increasing Windpower on the grid

Keeping the grid stable means matching supply and demand at all times. If a powerplant ‘trips’ due to a sudden unexpected fault it causes an immediate shortfall in energy and this can cause the frequency of the system to drop. If this drop is not arrested & reversed quickly, then the whole system can crash leading to widespread power failure. Last time this happen in Ireland was in the 1950s….a testament to how well managed the Irish grid is but is more common in places like Australia. Without getting into the reasons why here – as the amount of wind on the grid increases this problem becomes harder to manage.

One of the ways the grid operators currently manage this risk is to combine windpower with gas turbines running in the background. Effectively a large numbers of these turbines have to be running at a low level in the background so if there is a fault they can respond automatically and immediately to push the frequency back up.   This is called inertial response. However, when operating in this low output modulation type mode the gas turbines are very inefficient. As you introduce more wind and solar, gas turbines become so inefficient as to be as polluting as coal (there are Eirgird studies on this).

This is where batteries come in. By responding fast & aggressively to faults, batteries reduce the need for the gas turbine inertial response back up.

A recent study at Queens University Belfast study suggested that 360MW of batteries can provide an equivalent inertial response to 3000MW of gas turbine generation. (note inertial response not power equivalent). The work at Queen’s is very interesting as they base a lot of their data off a 10MW battery energy storage system at Kilroot power station, N.Ireland. Thanks to progressive grid policy by Eirgrid and SONI (N.Ire), Ireland is a world leader in wind penetration and now we are moving to the next level, by addressing the challenge of providing clean inertial response with batteries.

 

Demand side response (DSU) developments

Some of you might be aware of the Demand Side Schemes.   The new DS3 scheme which could have potentially been a source of income for sites with generators are now very onerous in terms of data collection and transmission and all but rule out everybody except a handful of the biggest industrial sites in Ireland.Existing DSU participants will be facing reduced payments unless a remote/automatic start facility is provided. We would guess that the success of the Australian Tesla battery was a factor in the decision to  keep this scheme confined to a small number of select sites.

 

World energy outlook 

Oil prices have been climbing hard recently – West Texas Intermediate (WTI) is above $65 a barrel while Brent crude is breaching $70 a barrel for the first time since December 2014. But, the USA has been bringing new oil wells on-line at speed as we expected given the increase in prices. Wellhead prices, the oil exchange at which the producer makes its money – are now in the range of the low $50s. At this point, most U.S. producers can run a profit. With the current ramp up, the USA should over take Saudi Arabia pretty soon as the second largest oil producer in the world and may even over take Russia as No.1.

 

Irish wholesale electricity prices 

The SMP price in Jan was 5.36 c/kWh a decrease from the Dec price of 5.77 c/kWh due to high wind levels in Jan (new records achieved thanks to all of those storms) and sluggish gas prices.

 

January 2018

Most of you will have seen my note on the 12th Dec 2017 when we had a couple of unpleasant surprises in the gas market in tandem which caused a huge (but temporary) surge in gas prices. I am not going to get into the detail here but briefly – there was an explosion at the Baumgarten gas hub in Austria and a crack discovery in a North Sea pipeline (Forties Pipeline system in Scotland) and  these events where then amplified by a cold snap AND maintenance issues at the large Norwegian Troll field.

You can see the spike in the gas price in the graph in the forward curve gas prices below. The top purple colored line is the forward curve gas price for NBP in Q1 2018. Although 60% of Ireland’s gas now comes from Corrib in Mayo, the Irish gas price follows the UK NBP price. The next day we briefed our procurement group members that aside from an short term increase we did not think this would have a significant effect on prices in the months ahead.  It turns out we were correct as  the Austrian supply disruption was brief and had little direct impact on physical UK (& Irish) supplies. The North Sea pipeline was more significant for Irish pricing as  it increased the market’s sensitivity to other events – such as further cold snaps and any unplanned outages.  The latest news is that the Forties North Sea pipeline has now been repaired and will return to normal flow rates early in the New Year.

 

 

In the SMP graph of Irish electricity prices below we do see prices pick up a little during mid month but within the normal seasonal ebb & flow range.

Sometimes we do read scare stories in the media about energy prices and events such as the above and worried clients do call me about them. One question you might be wondering is that when we make market calls like this – is it just guesswork or do we have a way of telling how things are likely to play out?  Well it’s not guess work:

– A good clue of the likely effect on prices could be seen on the forward curve graph below. Although NBP (red line) for Q1 had run much higher, forward curve prices for the other periods were flat. This suggests the market does not see any shortage of supplies next year.

– we also saw that shipments of LNG can be brought in within a reasonable timeframe. It takes about two weeks to bring LNG from Qatar, the U.K.’s biggest supplier of LNG. Tankers from Russia’s new Arctic plant Yamal could arrive in about five days and indeed the very first shipment from Yamal (170,000 cubic tonnes of LNG) was diverted to the UK . Russian media seized on the delivery of the LNG to claim it would “keep Britons from freezing this winter” while the Russian embassy in the UK tweeted: “Feeling cold? Help is on the way.” Now that Forties is back on-line it may be sold elsewhere.

So it’s not guess work, understanding the supply situation and reading price signals from traders is key (prices are forward looking).  BUT you do need to understand that a surprise random event can always change the outlook. It is important to appreciate that nobody can predict the future. The recent news from Iran is a reminder that the middle east has always been a powder keg and events there can move prices without warning.

For  Irish electricity prices, 2018 is likely to be particularly tricky as we are going to see the biggest change in how electricity is priced in many years as I described in earlier newsletters. I would encourage readers to get expert advice.

 

SEAI annual report & EXEED

SEAI published their annual 88 page report which has lot of numbers about Irish energy trends for anybody interested in the developing national energy picture.

https://www.seai.ie/resources/publications/Energy-in-Ireland-1990-2016-Full-report.pdf

SmartPower is a big fan of the SEAI as they really have a lot of great grant assisted energy saving programs which add huge value to people participating in them. For example, in the last two SmartPower has completed 10 EXEED (Excellence in Energy efficient Design) programs with the SEAI. This year we plan to cap the number of clients we work with on this program and will have a cut off date early in the year for new projects. If you are interested in doing an EXEED project, you will need to get in touch with us before the end of January. 

 

Renewables

In the past few years Renewables have grow faster that almost anyone predicted. Some people even predicted (and there are plenty of naysayers still around) that renewables would never account for more than 10% of supply (at any one time). We have already seen some smaller countries like Denmark and Portugal run on 100% renewables for electricity generation for days at a time and even the huge German economy reached 85% of electricity produced from renewables (wind, solar, biomass, and hydroelectric power during the long May 1 holiday weekend),

To be fair to the naysayers, there are still many days in Germany where wind and solar provide less than 10% of demand or even much less if there is no wind on a dark day in winter. (Sometimes the challenges of renewables can be glossed over).

In Ireland renewable electricity generation accounted for 27.2% (normalised) of gross electricity consumption in 2016. If we take into account total energy consumption which includes transport the contribution of renewables to gross final consumption (GFC) was 9.5% in 2016. The 2020 target for Ireland is 16%. We should bear in mind that Ireland has a far better renewable resource than Germany because of all the wind here. You can get an idea of how much potential we have in Ireland from a video I made here.

https://www.youtube.com/watch?v=YMs5Gwr1VgU

From the SEAI report we can see that the combination of renewables and the Mayo gas Corrib field coming on-line has reduced Ireland’s energy import dependency from 88% in 2015 to 69% in 2016. As a result, the energy import bill for Ireland fell from €4.6 billion in 2015 to €3.4 billion in 2016.

 

World energy outlook

Oil prices have been acting strongly due to a combination of Iranian news and the on-going supply cuts led by OPEC & Russia with crude rising to mid-2015 highs. Lots of eyes are on US production numbers as the Trump administration opened up the Gulf of Mexico drilling blocks which Obama had closed.The opening of Alaskan oil fields (which has huge reserves) next to North Slope production zones could potentially increase US production in 2018.

We have to keep our eye on these developments.

 

Irish wholesale electricity prices 

The average Irish SMP price in Dec 2017 was 5.77 c/kWh up from 5.69 in Nov. An increase but not bad considering the scare described above.

 

 

EUR/GBP analysis

This currency pair is still trading in a range which reflects the fact that the UK and Europe are still stuck in a state of both financial and political limbo with over a year before the talks are due to finish on the terms of the UK exit.