Eight Member States are being slow to take the necessary measures to complete the internal EU energy market by 2014. To achieve this, timely and complete transposition of EU legislation on the single market of gas and electricity into national law is crucial.

Opening energy markets for competition is key to competitiveness of the EU economy as a whole. An efficient, interconnected and transparent European internal energy market will also offer consumers a choice between different companies supplying gas and electricity and will make the market accessible to all suppliers.

The Electricity and Gas Directives of the Third Energy Package have to be transposed by the Member States by 3 March 2011. To date Bulgaria, Cyprus, Spain, Luxembourg, Netherlands, Romania and Slovakia have not informed the Commission of any transposition measures for the two Directives and Estonia has not done so as regards the Gas Directive.

Consequently, the Commission has sent 15 Reasoned Opinions to these 8 Member States to urge them to comply with their legal obligation. The Member States now have two months to respond. If they fail to comply the Commission may refer them to the Court of Justice of the European Union.

UK primary energy production fell by a record 14 per cent in 2011 to 136.3 million tonnes of oil equivalent, following sharp falls in output from the UK Continental Shelf as a result of maintenance activity and slowdowns. On an annual basis, petroleum was down by 17 per cent, with gas production down by 20 per cent.

Low carbon energy production grew – nuclear output was up 11 per cent, due to increased availability following a number of outages in 2010; wind output from major power producers was up by 59 per cent on additional capacity and higher wind speeds; with hydro up by 70 per cent following strong rainfall in Northern Scotland.

Gas accounted for 41 per cent of electricity supplied in 2011, with coal accounting for 32 per cent and nuclear 20 per cent. The share of generation by gas has fallen from 48% in 2010, with increases in the shares of generation for all other fuel sources.

Wind’s share of generation by major power producers has grown from 2.4 per cent to 4.0 per cent in 2011; with hydro’s share up from 0.8 to 1.5 per cent. Low carbon sources accounted for over 25 per cent of major power producers generation in 2011, up 5 percentage points on 2010 levels.

A mid-term review of the European Energy Programme for Recovery has found that offshore wind energy is the strongest performer of the three areas selected for funding in terms of investment, creating jobs and putting investment in place quickly. The Eur4 billion European Energy Programme for Recovery (EEPR) was launched in 2009 in response to the economic crisis and the need to meet EU energy policy objectives. Three areas – offshore wind energy, gas and electricity infrastructure projects and carbon capture and storage (CCS) – were selected for funding.

Offshore wind energy was allocated the smallest amount of funding – Eur565 million or 14% of the total – but has created ten times more jobs than CCS projects. Since 2009, a total of 4,000 jobs have been created in offshore wind projects financed under the EEPR compared to 400 in CCS, despite CCS being allocated nearly double (Eur1.05 billion) the amount allotted to offshore wind.

Vilma Radvilaite, Regulatory Affairs Advisor at EWEA, comments: “It shows that wind energy projects are an ideal way to stimulate economic growth and create jobs while at the same time reducing greenhouse gas emissions, and improving our energy security. Investment in the wind power sector should be recognised as a way to restore Europe’s economy to health. This report shows that stable legislative frameworks to promote the development of the wind industry should be maintained and enhanced, even in times of austerity.”

Under the Eur4 billion EEPR, 44 gas and electricity infrastructure projects, nine offshore wind energy projects and six CCS projects received funding.

EDF Energy has announced it will cut gas prices by 5%, making it the first major energy supplier to lower prices this year. The move, effective from 7 February, follows in the footsteps of smaller energy firms Co-operative Energy and Ovo Energy, who have already announced price decreases.

The price cut will be on gas, and not electricity. EDF Energy was the last of the major energy companies to raise its prices after it upped gas by 15% and electricity by 4.5% in November.

Which? executive director Richard Lloyd says: “This gas price cut will be welcome news for millions of consumers with already squeezed household budgets. But it follows a hike of 15% last November. Now the pressure is on for the rest of the major suppliers to follow suit. But as our survey today shows, there remain huge problems with customer service in energy as well as high prices.”

Four million complaints were received last year by the UK’s ‘big six’ energy companies – British Gas, EDF Energy, Eon, Npower, SSE and Scottish Power – and tens of thousands were still unresolved after eight weeks, according to a new Which? investigation. A Which? survey reveals that 40% have had a problem with a gas and electricity company in the last two years – a large number for an industry where very little should go wrong with the product itself.

The most common problems people reported were billing and meter problems, including mistakes on bills, inaccurate meter readings and missing bills. But almost a quarter (23%) of those who had a problem with an energy supplier did nothing about it.

If consumers don’t complain, there is no chance for things to be put right. Thousands could be missing out on compensation from the energy ombudsman – the next port of call for complaints not satisfactorily dealt with by energy suppliers – and, according to Which? research, the amount of unclaimed payments could be as much as £4 million a year.

Which? executive director Richard Lloyd says: “These findings reveal shockingly high levels of complaints and low levels of customer satisfaction in the energy industry, at a time when domestic bills have gone through the roof. Ofgem, the regulator, should publish the truth about the full level of complaints in this essential service. Energy suppliers should be held publicly accountable, on a regular basis, for putting right the problems their customers are reporting.”

British Gas and Npower Fined

The news comes shortly after Npower and British Gas were fined by the energy watchdog Ofgem for mishandling complaints. British Gas was fined £2.5 million and Npower £2 million. This represents only 0.02% of British Gas’s turnover in 2010. Both companies will have to pay their penalty by 22 February 2012.

These findings come alongside the results of the 2012 Which? Switch satisfaction survey, which reveals the ‘best and worst energy companies’ according to their customers, in the biggest publicly available survey of its kind.

The Which? Switch 2012 satisfaction survey reveals the best and worst energy suppliers from a survey of over 8,000 people. Good Energy tops the table with the highest customer score (84%), followed by Utility Warehouse (78%) and Ecotricity (77%). Of the larger companies, SSE comes first with a customer score of 51%, and Npower comes last with only 41%.

A decrease in both gas and electricity prices drove the Bord Gais Energy Index 1% lower for the month of December but it was 5% higher for 2011 as a whole. The ongoing European sovereign debt crisis, fears about global economic growth in 2012 and a mild start to the winter across Ireland, the UK and Europe, all contributed to put downward pressure on gas and electricity prices. However, Ireland did not benefit fully from falls in fuel commodity prices as the euro weakened over the month.

The average price of Brent crude oil posted a record high in 2011 as daily oil demand hit a new high of 89 million barrels per day, as growing demand from the emerging market countries continued. Prices were also supported by concerns about supply from the Middle East and North Africa. As a result, the Bord Gais Energy Index now stands at 143, which is 5% higher than in December 2010.

John Heffernan, power trader at Bord Gais Energy, comments: “The Index recorded a 1% drop for December; however the impact of the decrease in fuel commodity prices was offset as the euro weakened over the month. This meant that in euro terms, oil and coal prices increased over the month. There are a number of strong influences that are putting downward pressure on fuel commodities including: the European debt crisis, fears of a slowing global economy in 2012 and mild weather across Europe. Should the euro continue to weaken versus the US dollar, euro zone buyers will not benefit fully from any price falls and would have to pay even more should prices increase.”

The following are the key trends recorded for the month of December:

Oil: The oil element of the Index was up 1% to 152. Due to the ongoing European sovereign debt concerns, the possibility of a European recession in 2012 and fears of further ratings downgrades. In US dollar terms, oil prices weakened in December. However, euro zone buyers of oil, such as Ireland, did not benefit fully from this fall as the euro weakened significantly versus the US dollar. Because of this, in euro terms, the cost of oil increased by 1%.

Natural Gas: The natural gas element of the Index was down 1% to 189. A mild start to the winter across Ireland, the U.K. and mainland Europe, depressed demand in December and has resulted in relatively high stock levels for this time of the year. This put downward pressure on prices over the month. Temperatures above seasonal norms in December reduced demand for gas-fired central heating and the holiday season also lead to the seasonal slowdown of many businesses and industry. The ongoing European sovereign debt crisis is also weighing on prices as it is now likely that Europe will burn less gas in 2012 as activity and production slows.

Coal: The coal element of the Index was up 2% to 145. In US dollar terms, coal prices fell in December as the world experienced an oversupply of coal. Economic uncertainties and a comparatively mild winter is restricting European demand. However, euro zone buyers of coal, such as Ireland, did not benefit fully from the fall in international coal prices as the euro weakened significantly versus the US dollar. Because of this, in euro terms, the cost of coal increased by 2% over the month.

Electricity: The electricity element of the Index was down 4% to 118. The average wholesale Irish electricity price for December closed 4% lower than its November equivalent as unseasonably mild weather and reduced demand for electricity pushed prices downwards. In addition, as the cost of gas and carbon reduced in the month, the cost of producing electricity fell. The availability of hydro and wind power put additional downward pressure on prices.

Payzone, Ireland’s largest consumer payments network, has introduced a new ‘top up’ payments solution, that will support the roll-out of modern PrePayment Meters (PPMs) in the gas and electricity markets. Installations of the new PrePayment Meters to eligible electricity customers commenced earlier in November as part of a three year roll-out plan aimed at over 100,000 households, deemed to be experiencing genuine financial hardship.

Payzone’s new ‘top up’ solution will facilitate the pre-payment of energy supply services from each of the utility companies using an electronic digital key pad system. By visiting any of the Payzone retail agents among its network throughout the country, users of the Prepayment Meters can purchase a range of energy credits and in turn will be provided with a digital pin number that can then be input via the key pad PPM system, ensuring supply of the appropriate level of energy.

“It is another great example of how Payzone is widening its range of payment solutions while playing to our core strengths of electronic payment facilitation and strong retail network coverage throughout the country,” comments Jim Deignan, managing director of Payzone Ireland.: “Payzone works with all the leading electricity, gas and other utility service providers to develop networks and supporting IT infrastructures for pre-payment, bill payment and other payment types.”

The Commission for Energy Regulation has decided to implement a debt flagging facility within the Irish gas and electricity market to alert energy companies when customers wishing to switch suppliers already have outstanding energy bills. The flagging mechanism will apply to domestic gas or electricity customers owing €250 or more for over 42 days, and for small businesses owing €750. A figure for medium-sized enterprises has yet to be finalised. Large energy users are not included in the new regime.

The new system, designed to address concerns about ‘debt hopping’, will help energy suppliers to choose whether to or not to take on a new customer with existing debt.

The CER has been concerned that in the current difficult economic climate, customer and industry debt levels are being exacerbated by some customers’ changing supplier in order to avoid paying their arrears or to avoid a pending disconnection. Debt hopping, and indeed the high general level of debt, is acknowledged as a serious issue for the industry raising costs for suppliers and ultimately for all consumers.

The CER had considered introduction a blocking option but concluded that the flag is more consistent with an open market for both the gas and electricity retail markets.

The implementation of a flag will continue to facilitate customer choice but also empowers the energy supplier to make a commercial decision about whether they will take on a customer with existing arrears. This measure supports suppliers in undertaking appropriate risk assessment as part of the customer acquisition process.

The CER is of the view that the flag should restrict the practice of deliberate debt hopping by customers, providing an appropriate incentive for customers to address their arrears with the existing supplier and increased protection for suppliers.

The new system will be monitored on an ongoing basis by the CER and a will also be subject to a 12 month review by October 2012.

Bord Gais Eireann is showing strong growth in its gas and electricity businesses, continued development of new assets and a significant increase in its energy customer numbers. Despite the challenging domestic environment, the company performed well in 2010. Turnover grew by 12% to Eur1.51 billion, while profit before tax remained relatively stable at Eur120 million. EBIDTA increased year on year by 8% to Eur354 million before exceptional items.

Concerns during the period included the increase in international wholesale energy prices and a significant uplift in customer bad debt. By the end of 2010, Bord Gais had approximately one million customers, including 460,000 electricity customers.

The development and acquisition of significant power generation assets is a strategic priority for Bord Gais, so the commissioning of the Whitegate Power Plant in County Cork was a major landmark for the company in 2010. Whitegate is one of the most efficient electricity generation facilities in the world today. It is the company’s first major gas-fired power station and cost Eur400 million to develop.

In 2010, the company invested Eur200 million in capital projects to support the delivery of a balanced portfolio of secure, competitive and efficient energy solutions, including renewables, to customers. This brings the company’s total capital expenditure in the last five years to Eur1.97 billion.

John Mullins, chief executive of Bord Gais.

“The 2010 performance sees the company on target to meet the objectives set in out in the five year strategic plan published in 2008,” says Rose Hynes, chairman of Bord Gais. “Bord Gais Eireann is continuing to make substantial progress with key milestones being realised such as the achievement of one million customers, continued investment in developing wind farms and alternative technologies and the commissioning of Whitegate.”

However, the issue of bad debt reached a critical level in 2010 and Bord Gais has made a provision of Eur26.4 million in its 2010 accounts.

John Mullins, chief executive of Bord Gais, comments: “Looking forward, international wholesale energy prices remain a concern and this will put increasing pressure on prices throughout 2011. Another key challenge facing the company this year is that Bord Gáis is the only regulated provider in the gas sector, and as such, faces considerable constraints in terms of its ability to compete on a level playing field. This needs to be addressed urgently.”

In 2009, oil remained the main source of energy in the EU27, with a share of 37% in the total gross inland energy consumption. However, there have been changes in the mix of sources contributing to gross inland energy consumption over the last decade.

The share of renewable energy has almost doubled, from 5% of total gross inland energy consumption in 1999 to 9% in 2009, while gas rose from 22% to 24%, according to Eurostat, the statistical office of the European Union. Nuclear energy remained almost stable at 14% during this period, while oil fell from 39% to 37% and solid fuels from 18% to 16%.

Oil represented more than half of energy supply in Malta (100% of total gross inland energy consumption), Cyprus (96%), Luxembourg (63%), Greece (55%), Ireland (52%) and Portugal (50%). The highest shares of gas were observed in the Netherlands (43%), Italy and the UK (both 38%) and Hungary (36%). The largest proportions for solid fuels were registered in Estonia (58%), Poland (54%), the Czech Republic (41%) and Bulgaria (36%), for nuclear energy in France (40%), Lithuania (34%) and Sweden (29%), and for renewable energy in Latvia (36%), Sweden (34%), Austria (27%) and Finland (23%).

All Member States showed increases in the share of renewable energy in their energy supply between 1999 and 2009, with the largest increases in Denmark (from 8% of total gross inland energy consumption in 1999 to 17% in 2009), Sweden (from 27% to 34%), Germany (from 2% to 8%), Portugal (from 13% to 19%), Slovakia (from 3% to 7%), Austria (from 23% to 27%), Latvia (from 32% to 36%), Spain (from 5% to 9%), Slovenia (from 9% to 13%) and Hungary (from 3% to 7%).

By Richard Frape, Director of Market Services, Spectron

UK gas and power prices rose 25% over the course of 2010, ending the year on a surge as the coldest December in 100 years propelled consumption levels higher and pushed short-term gas prices towards a two-year high. Prices then started to ease sharply at the start of this year, but have since been catapulted higher again by a triple whammy of majorly bullish events – the Japan crisis, the outbreak of Arab unrest and the introduction of a larger than expected UK carbon tax. Prices are now double their levels a year ago (for front Annual gas –  March 2010 to March 2011). But are these events likely to have a lasting effect on prices and what are the other key issues to look out for this year that will be driving market direction?

Firstly, it is probably worth noting that the late 2010 surge was in fact much smaller than might have been expected given the intensity of the cold weather not only in the UK, but across Europe and the rest of the northern hemisphere, including super energy guzzlers the US and China (which helped drive oil and coal prices to 27-month highs). The UK system coped remarkably well and supplies were never excessively squeezed, largely due to the arrival of record numbers of liquefied natural gas (LNG) tankers, while demand remained tempered by continuing economic uncertainty.  

A fresh record for LNG deliveries was again seen in January, as the addition of significant new global LNG capacity this year – yet more in Qatar, but also in Australia – helped foster a perception that UK supplies would remain plentiful for the coming months, weighing on prices. But the Japanese disaster was a complete game-changer. Fears of largescale LNG diversions to Japan stemming deliveries to the UK caused a u-turn in sentiment and pushed the markets higher.

One only has to look back a year to see how fickle LNG supply can be at the best of times and how quickly it can change. In early 2010, the expectation of a global LNG glut was exerting strong pressure on UK gas prices, but by April prices were roaring higher as the Qataris took significant parts of their LNG production capacity offstream for extended maintenance. The maintenance season is expected to be shorter and more limited this year but may still affect supplies. Also, new LNG import capacity is due onstream this year in south-east Asia, Latin America and the Middle East, which may increase competition for LNG shipments; although some analysts suggest a current LNG production overhang is more than enough to satisfy this new demand and the increased Japanese requirements, so supply concerns may have been overstated.

While the weather has also improved, and taken some of the upwards price pressure away, some forecasters are predicting the UK will be colder than normal over the next three months. Any further bouts of unseasonably cold weather could reignite supply and storage concerns. On the other hand, Rough, the UK’s main storage facility, despite starting the year just 45% full – a much lower level than in recent years, has seen stocks recover strongly, which could reduce the amount of replenishment buying over the Summer.

UK gas and power prices have been decoupled from oil prices for much of the last year (often moving in different directions) – so what has been happening to oil has in some ways been irrelevant. However, the fact that oil prices have now broken above the the psychologically important $100/barrel level has changed this, and gas has shown signs it may be falling back under oil’s influence again. Geopolitics has been thrust squarely back into driving seat of the whole energy complex for the first time since 2008 and fears of another oil bubble could lead to other energy markets ramping higher in tandem, with speculative buying adding to the momentum. One saving grace may be that crude oil prices in the US have struggled to stay above $100/barrel – which may dampen the upside potential.     

Currently energy price movements are also significantly correlated to financial market movements, with news about the state of the economy driving sentiment, particularly on the longer term markets. While economic recovery seems inevitable, fears over double or multiple dips may continue to keep the market in check.

Coal prices have been a key background driver of UK power and gas prices, and hit their highest levels since 2008 on the back of the Queensland floods disrupting production. But as production has returned to normal, prices have come under some pressure again. On the flip side, India’s coal minister says imports there may double this year, and analysts say that Chinese imports may increase by 27%, which will help shore up values.  

Several new power plants are due to come onstream over the next few months in the UK, improving production capacity and also reducing reliability concerns over ageing infrastructure. At the same time the operating lives of two UK nuclear plants have been extended for five years, and extensions of between 5-20 years are currently under discussion at other plants, which is all good news for the supply outlook, although several older plants have also just been mothballed for a year. Meanwhile the start-up of the BritNed interconnector cable between the UK and the Netherlands (commissioning flows initially but commercial volumes from April) will also give the UK an extra 1,000 MW exposure to Continental prices. This could help ameliorate or exacerbate price spikes, depending on market conditions at either end of the cable.

However, the planned UK power market reforms, which are set to be finalised this year, remain one of the greatest uncertainties. News of a new carbon tax from 2013, which will increase generation costs, added almost 5% to UK long-term electricity prices the day after it was announced, and further reform will only put further upwards pressure on prices, many believe, as costs are passed down the supply chain.

Longer Term

In the longer term, diversity of gas supply sources will become a more important issue, particularly if the  global nuclear backlash following the problems at Fukushima causes another “dash for gas”. UK gas production continues to decline by 8-10% annually so the reliance on other sources of gas will only increase over time, despite glimmers of hope following new discoveries West of Shetland.  At the same time Norway, our biggest gas exporter, has indicated its gas production may decline from 2015; it has slashed its estimates for undiscovered gas resources by 31% following a lack of significant new discoveries last year. (Norway, which supplies Europe with 20% of its gas, has seen its oil output decline by 50% since 2000).

But Europe is already making plans for new gas sources, with pipelines to the gas-rich former Soviet states being built, Iran also expressing an interest in using these pipes for westwards gas exports. Israel may too become a key new gas exporter – the biggest natural gas deposit discovered in the last ten years has recently  been found off its coast.  At the same time the goldrush to bring shale gas production onstream across Europe is bubbling away in the background, while reserves of “unconventional” gas from other sources – hydrates, coal-beds, tight gas etc. seem to be revised upwards almost daily. While the world has or is reaching a peak oil scenario, it is awash with gas, seems to be the conclusion. The key question is how gas will feature in the UK’s mix of energy sources going forward, as legislation continues to focus on a move away from fossil fuels, including gas, and cleaner energy may be a more expensive alternative.

Spectron is a leading provider of market data and analysis for the gas, power, emissions and coal markets in the UK and across Europe.

As ESB Electric Ireland competes, for the first time, in the deregulated residential electricity and gas markets, the company is launching a new range of price plans for the residential electricity and gas markets that will offer substantial savings for customers. These include:

* Savings of up to 17% on electricity unit rates, representing the best value in the market, are available to customers as part of a dual gas and electricity package from ESB Electric Ireland.

* Savings of up to 14% on electricity unit rates for customers who avail of the electricity only product from ESB Electric Ireland.

* Savings of up to 6% on regulated Bord Gais Energy (BGE) unit rates for ESB Electric Ireland customers who choose to buy gas only from ESB Electric Ireland.

* Savings of up to 9% on electricity unit rates with Green electricity product.

All of these savings are effective from April 4th as part of ESB Electric Ireland’s new price plan offerings which include a range of electricity-only, gas-only or dual products. The offerings demonstrate ESB Electric Ireland’s commitment to compete and maintain its leading position in the energy market.

“We are very aware of the financial pressure on customers in the current environment. In developing our new electricity and gas price plans we are determined to provide customers with the best choice, value and products in the Irish energy market. We are confident that this versatile range of price plans delivers on this,” comments Liam Molloy, general manager of ESB Electric Ireland.

Minister for Enterprise, Jobs and Innovation Richard Bruton TD has welcomed the ESB’s announcement of price cuts of up to 17% for electricity and gas customers. “Based on the figures provided, this move could see Eur100 million or more being transferred from the ESB back into the pockets of their electricity customers alone. This is not including Airtricity, Bord Gais, or gas customers who are eligible for further savings. It represents a major saving for hard-pressed consumers and a small but helpful stimulus for the economy in these difficult times.”