UK Electricity – What happens next?

Robert Groves, CEO SmartestEnergy

The Balance of the Energy ChallengeInstitute of Water EventWorthing, 14th April 2016

Agenda

2

Introduction to SmartestEnergy;

The state of play in the current UK wholesale energy markets;

Political and regulatory change coming in the UK;

Using Germany as an example, what might happen in the UK?

What does the UK water industry need to consider?

And what does this all mean for what your electricity supplier will be thinking?

Agenda

3

Introduction to SmartestEnergy;

The state of play in the current UK wholesale energy markets;

Political and regulatory change coming in the UK;

Using Germany as an example, what might happen in the UK?

What does the UK water industry need to consider?

And what does this all mean for what your electricity supplier will be thinking?

SmartestEnergy is the largest purchaser of renewable power from distribution connected renewable generators in Great Britain:

A market share of 13%* versus the capacity in the available market;

2.5GW of contracted installed capacity;

Generators participating in all schemes as well as merchant;

Generators ranging in size from 50kW to 90MW;

300+ generation customers in the UK; and

550+ generation sites in the UK.

The portfolio includes all mainstream renewable technologies and good quality CHP with 43% of Smartest’s generation portfolio now from wind or solar.

The UK’s leading generation aggregator of renewable-distribution connected generators

4* Figures from Cornwall Energy Consulting and quoted correct at 11th January 2016UK Renewable Market figures sourced from Ofgem

Introduction to SmartestEnergy

A new entrant suppliers (2008) to the large business consumer supplying making Smartest #10 by volume (2015)

A retail business launched in 2008 supplying large industrial and commercial consumers and now supplying 3.4% of the UK’s business electricity volumes:

7 TWh delivered supply per annum;

1000+ business customers supplied and 7,000+ sites supplied.

In our targeted large business user market, Smartest now has a bigger market share (5% and #7 by volume) than Scottish Power (3.2%) and British Gas (2.6%) with the offering targeting :

Large business users with a preference for a renewable power supply;

A customised contract offering with bespoke terms the norm and competitively priced offer.

Market leading customer service and ranked #1 for UK customer satisfaction amongst UK business consumers in 2010, 2011, 2012, 2013 and 2014 and voted ‘Supplier of the Year’ in 2012*.

5* All figures quoted correct at 19th January 2015 and business user customer satisfaction as per the Datamonitor Major Energy Users Survey 2010-2014 incl (discontinued in 2015)

Introduction to SmartestEnergy

Agenda

6

Introduction to SmartestEnergy;

The state of play in the current UK wholesale energy markets;

Political and regulatory change coming in the UK;

Using Germany as an example, what might happen in the UK?

What does the UK water industry need to consider?

And what does this all mean for what your electricity supplier will be thinking?

7

The UK wholesale electricity markets are not pricing a supply crunch even though there may be one in winter 2016/17, volatility or higher prices

Current UK wholesale energy markets

Sources: BBC - Electricity blackouts risk up, says National Grid - http://www.bbc.co.uk/news/business-33527967Argus European Electricity, Issue 16-057, p1 (12th March)EMR Delivery Body - https://www.emrdeliverybody.com/Lists/Latest NewsAverage of front two season on the Spectron end of day price

Chronology of National Grid Actions - Year to date

Spare electricity capacity in the National Grid during winter

Agenda

8

Introduction to SmartestEnergy;

The state of play in the current UK wholesale energy markets;

Political and regulatory change coming in the UK;

Using Germany as an example, what might happen in the UK?

What does the UK water industry need to consider?

And what does this all mean for what your electricity supplier will be thinking?

9

Just as we thought Electricity Market reform was settled, comes more regulatory uncertainty for the UK electricity industry

Political and regulatory change coming in the UK

Recent regulatory outcomes

Single cash-out and more marginal pricing

CMA – T-losses embedded benefit

going

Reduced subsidies for renewables

Half hourly metering for all sites

Current regulatory concerns

Increasing marginality in pricing

Ofgem review of all embedded benefits

CM – no behind the meter generation

Europe – 15 minute settlement periods

What does the future hold?

Greater volatility

Reduced Triad/BSUoS embedded benefit

Greater incentives for storage

Greater price granularity

Agenda

10

Introduction to SmartestEnergy;

The state of play in the current UK wholesale energy markets;

Political and regulatory change coming in the UK;

Using Germany as an example, what might happen in the UK?

What does the UK water industry need to consider?

And what does this all mean for what your electricity supplier will be thinking?

11

Germany provides a benchmark for how the UK electricity market may behave in the future with lower wholesale prices but higher volatility and higher end consumer bills

Using Germany as an example, what might happen in the UK?

Agenda

12

Introduction to SmartestEnergy;

The state of play in the current UK wholesale energy markets;

Political and regulatory change coming in the UK;

Using Germany as an example, what might happen in the UK?

What does the UK water industry need to consider?

And what does this all mean for what your electricity supplier will be thinking?

13

UK water companies will increasingly have to consider more active participation of their energy supply decisions

What does the UK water industry need to consider?

UK water companies will also need to be aware of pending tariff increases of £10.45/MWh effective April 2017 that will increase end user prices by 10%

Tariff Change When Impact

CfD

Energy Intensive Industry Exemption for RO and FiT costs and scheme growth

April 2017 ~ + £2.95 / MWh

Capacity Market

Brought forward to 2017 April 2017 ~ + £3.00/£5.00 / MWh

ROScheme Growth and EII Exemption

April 2017 (may be partially delayed to 2018)

~ + £2.60 / MWh

FiTScheme Growth and EII Exemption

April 2017 (may be delayed to 2018)

~ + £0.45 / MWh

DUoS Regulated rise April 2018~ + £0.80 / MWh

TNUoS Regulated rise April 2017 annually ~ + £0.45 / MWh

CCL Amalgamation with CRC April 2019~ + £2.65 / MWh

14 *Assumes an end user price of £125.57

Agenda

15

Introduction to SmartestEnergy;

The state of play in the current UK wholesale energy markets;

Political and regulatory change coming in the UK;

Using Germany as an example, what might happen in the UK?

What does the UK water industry need to consider?

And what does this all mean for what your electricity supplier will be thinking?

16

The incumbent electricity suppliers will be focused on internal transformation with the energy supply market likely to look very different in the future

And what does this all mean for what your electricity supplier will be thinking?

Transformation for DNOs to DSOs;

Growing importance of distribution connected generation;

Demise of vertically integrated energy cos;

Impact of renewable generation and consumption patterns;

Other purchasing platforms.

Active balance management;

Avoidance of non-energy related costs;

Rise of the 1 stop shop supplier;

Renewable consumption as a USP for end users;

The age of big data and the eBay of energy.

EDF

RWE

Centrica

E.ON

SSE

Source: Google Finance - Yahoo Finance – Reuters, 31st March –5 year period

UK Electricity – What happens next?

Robert Groves, CEO SmartestEnergy

The Balance of the Energy ChallengeInstitute of Water EventWorthing, 14th April 2016