Informer Series: New government and non-energy charges update

Webinar - 27th May 2015 Speakers: Dan Smith, Head of Channel Sales Gavin Baker, Head of Pricing

Agenda

Price update Conservative energy and environment pledges In the headlines… FiT Contracts for Difference (CfD) Auction Results Small-scale Feed-in Tariff (FiT) forecast Renewables Obligation (RO) forecast EMR Distribution of Usage System (DUoS) Transmission Network Use of System (TNUoS) Balancing Services Use of System Charges (BSUoS)

2

Wholesale Price

Politics

Environmental

System & Network

Wholesale Price Update

How the market has moved since last month… Front of the curve has been generally lower

LNG continued to be high, with more expected Dutch court ruled that production at the Groningen field would only be restricted in a limited geographical area, easing fears that the production cap would be lowered Rough outage has meant that much less gas can be injected than a typical summer, supressing demand

But with some support Norwegian supply issues have meant balancing the UK system has been challenging at times. Higher carbon has lifted spark spreads Brent crude is now up $20 since January low

Electricity prices low during Q1 For Q1 as a whole, price averaged £45.10/MWh - 10% less than the average for Q4 2014 of £50.40/MWh

3

Wholesale Price

35.0040.0045.0050.0055.0060.0065.00

Front Year £/MWh

40.00

50.00

1-M

ay-

2014

1-Ju

n-20

14

1-Ju

l-201

4

1-A

ug-2

014

1-Se

p-20

14

1-O

ct-2

014

1-N

ov-2

014

1-D

ec-2

014

1-Ja

n-20

15

1-Fe

b-2

015

1-M

ar-2

015

1-A

pr-2

015

Front Year £/MWh

Energy and environment pledges

4

Politics

Source: The Carbon Brief

In the headlines…

5

Politics

Webinar: Impact of the new government on the energy industry

Competition Markets Authority

June 2014 - Ofgem referred the energy market to the Competitions and Markets Authority (CMA)

Why: Distrust of Suppliers Relationship of Supply and Generation Businesses Rising Profits No Reduction of Supplier Costs or Improving Customer Services

July 2014 - Initial report sets out four ‘theories of harm’: 1. Transparency & Liquidity 2. Vertical integration 3. Market power 4. Consumer Switching

6

Politics

Competition Markets Authority

Feb 2015 - Report that households that remain loyal to their supplier by not switching end up overpaying by hundreds per year. March 2015 - Ofgem announced its plans for code of practice for TPIs would be delayed until after the CMA has published its report into energy sector

The CMA has identified the non-domestic TPI sector as “worthy of further investigation”

Latest Update - New government have said they will implement the findings of the investigation June 2015 - Early CMA results Nov-Dec 2015 - Final report released

7

Politics

Solar 3.3%

Onshore 35.0%

Energy from waste 4.4% Gasification

2.9%

Offshore Wind 54.3%

Solar 18.5%

Onshore 55.6%

Energy from waste 7.4%

Gasification 11.1%

Offshore Wind 7.4%

FiT CfD Auction Results

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Environmental

Project allocation Capacity

Click here to see full auction results

Price of renewables

£-

£20.00

£40.00

£60.00

£80.00

£100.00

£120.00

Gasification OffshoreWind

Onshorewind

Energy fromwaste

Solar

DifferenceWholesale

Source: DECC

Newest charges on business electricity bills as part of EMR

9

Environmental

‘Budget Available’ has been aligned with subsequent RO and FiT costs.

0

5

10

15

20

25

30

35

0

500

1,000

1,500

2,000

2,500

3,000

3,500

2015-16 2016-17 2017-18 2018-19 2019-20 2020-21

TWh

Gen

erat

ion

£mn

FiT CfD cost snapshot

Forecast Budget Still Available Announced Projects Cost

Biomass Conversion Costs Contracted Generation

2016-17 2017-18 2018-19 2019-20 Central Case Consumer Rate /MWh £1.66 £2.74 £5.20 £7.35

Small-scale FiT charge forecast

10

Environmental

3.31

4.15 4.45

4.58

3

3.2

3.4

3.6

3.8

4

4.2

4.4

4.6

4.8

5

2014-15 2015-16 2016-17 2017-18

£/M

Wh

Feed-in Tariff Costs

PreviousCentral Case

Possible Impactof SummerReview

Central Case

Renewables Obligation (RO) forecast

11

Environmental

12.856

14.11

14.83

15.28

12

12.5

13

13.5

14

14.5

15

15.5

16

2015-16 2016-17 2017-18 2018-19

£/M

Wh

Renewables Obligation

PreviousCentral Case

PossibleImpact ofEarly OnshoreWind Review

Central Case

Major Energy Users Exemption

12

Environmental

Consumers who currently receive relief from CCL may be eligible for renewables costs relief of up to 85% depending upon electricity intensity and eligibility. Feed-in Tariff relief brought forwards to 2015-16

Approximately 15TWh relief in budget RO from 2016

No impact on wider consumers Administered by government directly

EMR Costs Relief

Socialised amongst all other consumers Administered by Suppliers

Further details expected in the Summer

DUoS

13

*RPI Forecast of 1.2% in 2016 rise and 3.0% in 2017

System & Network

-10.00%

-5.00%

0.00%

5.00%

10.00%

15.00%

20.00%

2015-16 2016-17 2017-18

DUoS tariff YoY % changes EELC

LOND

SEEB

MIDE

EMEB

SWEB

SWAE

SOUT

HYDE

SPOW

MANW

NORW

NEEB

YELG

Rise in TNUoS from current year

14

Northern Scotland

Southern Scotland

N.Wales

S.Wales

S.East S. Western

System & Network

2015/16 Final (£/kW)

2016/17 Previous Forecast (% rise)

2016/17 Current Forecast (£/kW)

2016/17 Current Forecast (% rise)

1 Northern Scotland 23.47 27% 29.34 25% 2 Southern Scotland 26.79 19% 31.40 17% 3 Northern 32.62 11% 37.38 15% 4 North West 35.68 12% 40.92 15% 5 Yorkshire 36.29 12% 41.67 15% 6 N Wales & Mersey 35.62 12% 41.28 16% 7 East Midlands 39.07 11% 44.85 15% 8 Midlands 39.63 11% 45.62 15% 9 Eastern 41.18 11% 46.97 14% 10 South Wales 37.61 11% 44.09 17% 11 South East 43.74 11% 49.65 14% 12 London 46.24 11% 51.95 12% 13 Southern 44.79 10% 51.00 14% 14 South Western 43.98 10% 51.30 17%

Substantial Capacity Changes

System & Network

Station 2016 Capacity in

Dec14 2016 Capacity in

Apr15 MW Change

Abernedd Power Station 500 0 -500

Barking 950 0 -950

Barry Power Station 235 0 -235

Brigg 155 0 -155

C.Gen Killingholme North Power Station 490 0 -490

Deeside 515 260 -255

Ironbridge 680 0 -680

Killingholme 900 0 -900

Killingholme 2 665 0 -665

Lynemouth Power Station 376 0 -376

Peterborough 245 0 -245

Rampion Offshore Wind Farm 664 332 -332

South Humber Bank 1285 540 -745

Walney Extension Power Station A Offshore Wind Farm 330 0 -330

Walney Extension Power Station B Offshore Wind Farm 330 0 -330

Total 8320 1132 -7188

86% decrease in

2016 capacity

BSUoS

16

System & Network

1.4

1.5

1.6

1.7

1.8

1.9

2

£/M

Wh

12m Rolling Average BSUoS

Market Performance

17

System & Network

50

60

70

80

90

100

110

12 month average Imbalance Costs and Balancing Performance (Apr14 = 100)

Imbalance Costs vs Market Price Market Balancing Performance

Questions?

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Thank you

Slides will be sent to all attendees Please complete the feedback survey at the end of the webinar Any additional questions please send to events@smartestenergy.com Next webinar is scheduled for September 2015

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