Bloomberg News

U.K Power Capacity Plan to Cut Trading Profit, BI Says

November 30, 2012

(Corrects attribution in headline.)

A U.K. government plan, outlined in its Energy Bill published yesterday, to pay power producers for back-up supplies will reduce price volatility and cut trading profits, according to Bloomberg Industries.

Electricity traders can generate returns from the volatility in price differences between peakload power, delivered from 8 a.m. to 8 p.m. on weekdays, and around-the- clock baseload, Chris Rogers, a utility analyst at Bloomberg Industries, said today by e-mail.

“Power capacity markets provide extra revenue to power plants that meet peak demand, resulting in less price volatility and lower trading revenue, Rogers said. ‘‘Traders will instead focus on capacity-type products.’’

The U.K. government is increasingly concerned about the security of power supplies after the regulator Ofgem warned that capacity will decline, raising the risk of shortfalls from 2015.

RWE AG (RWE), which has invested more than 4.5 billion pounds ($7.2 billion) in energy infrastructure in Britain since 2006, said yesterday it doesn’t support the capacity mechanism proposal.

‘‘RWE does not believe the case has been made for the introduction of a capacity mechanism at this time, the company said in a statement on its website. ‘‘The introduction of a capacity mechanism will add significant unnecessary cost to the British economy and our customers.’’

A final outline of the market model to be adopted is due in May 2013, with details in October and the first auction in 2014 for 2018-19 delivery, Rogers said.

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


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