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This is hard to tally with interventions in power markets the world over which seek to boost system malleability, reducing the number of power stations that are built solely to meet the winter peak demand, and ultimately bring down costs for homes and businesses, as well as cutting power sector emissions.
Now, add on to this a new wave of changes that Ofgem has announced it is favouring, that could be implemented as soon as April 2020, and the picture starts to look much even worse. Ofgem has declared that they are planning on amending another tranche of network charges, to ensure that those unable to opt out of using the national system are not left to pick up the bill from those who have.
The decision to change two key aspects of network charging will fall in favour of large-scale gas-fired electricity generation. This is exactly the sort of capacity that is currently struggling to be built, and the very same that modelling by Sandbag and others have shown isn’t needed, even as the UK phases out coal.
The proposed changes will see the “embedded benefits” of smaller, distributed generators reduced, affecting both the economics of their day-to-day running, but also the finances behind decisions that see new capacity built and old capacity retired.
Should they come into effect – which seems more than likely based on Ofgem’s position – modelling carried out as part of the consulting process shows that UK gas output will rise. This will be at the expense of imported power in the first half of the decade, but then at the expense of renewables later in the 2020s. With the UK already off target for its fourth and fifth carbon budgets, and the likelihood that the decarbonisation of sectors such as heat and transport will lean heavily on the electricity sector, this doesn’t seem like a good thing.
https://utilityweek.co.uk/one-step-forward-three-steps-back
One step forward, three steps back?
11/12/2018 at 12:50pm Jonathan Marshall, head of analysis, Energy and Climate Intelligence Unit Energy networks
"The decision to change two key aspects of network charging will fall in favour of large-scale gas-fired electricity generation"
Beneath all the fanfare of Britain’s move to a low-carbon, smarter and more flexible electricity system lies a panoply of rules and regulations, very few of which ever receive public attention.
With the National Infrastructure Commission identifying up to £8 billion in annual benefits from the switch to a ‘power system 2.0’, it is easy to see how these underlying details can become very important.
So while on the face of things, ministers can claim that they are taking steps towards the power system of the future, by digging a little deeper it is possible to check if the actions actually match the rhetoric.
It was only last month when the government was embarrassed by an ECJ ruling that declared the capacity market – and all contracts signed to date – invalid, a move that is likely to ramp up financial pressure on small power producers, storage operators and DSR providers by cancelling an income stream on which many were reliant. These products and companies are seen by many as an essential component of the jump to a smarter system.
Now a “minded to decision” from Ofgem could add further confusion to a sector that has historically pulled more than its weight in terms of cutting emissions from the UK’s national budget. This change, along with other modifications to the network rules, run contrary to top level announcements about moving to the grid of the future.
This winter is also the first following changes to the way in which the distribution network is paid for, changes that make it less attractive to shift energy demand away from peak hours energy – another process widely regarded as a key pillar of the transition to a majority-renewables electricity system.
Known catchily as DCP228, the modification to network charges reduce the difference between charging bands that are used to recoup the costs of maintaining the pipes and wires from the companies that use them.
Split into three bands – red, amber and green – the charges increase with load on the grid, the red band covering the highest demand hours. By reducing costs during “red” hours (generally 4-7pm on a school day) and increasing those incurred at other times, a major incentive to increase system flexibility is reduced.
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Indeed Spud - if only those buying in had been along to the presentation as they could have bought in the .6s....now it's knocking on the door of .8 again and on little volume :)
Seems to be gaining some momentum. Lowish volume day and yet the share price held up nicely. Looking forward to the equity partner announcement in Q4 - not many days left in the quarter. A few more decent days makes this even more attractive for those who have remained on the sidelines.
Looking good ! Maybe people are looking at the presentation and realising equity deal incoming will unlock the next project and so on...... Also revenue generating when construction starts which , imo, is when enabling works start in a few weeks!
Correct interpretation,Radders 99 ..sometime this week .....or early next ..certainly before year end ...so stock up on this beauty below .78 when you can ...if you can !!
John was pretty confident in terms of funding .. reiterated afterwards in informal discussion that Q4 was target and very much understood that in reality meant the next couple of weeks. He didn’t strike me as someone who would offer that up unless extremely confident. My bet would be this week.
It was pointed out during the presentation
Yes, spud, I missed that one liner on p22. Could well be some income generation next year from managing the Phase 1 construction process. Well spotted!
I'm pretty happy with the way things are going. They haven't missed a deadline so far. Some experienced member joining the bod and buying in. Looks good to me. However, if by end of December we are no closer to a deal alarm bells will start ringing. AIM is full of companies awaiting finance that never arrives.
O&W, have a closer look at slide 6 and 22
Slide 22
"Our aim is to turn income generating & have increased out portfolio
to more than the Islandmagee project in 2019"
Slide 6 shows how this will be done. Initially infa get a construction management fee and once operational we get paid to operate the facility.
I'm guessing the project development (carry) will be an upfront payment to infa.
Then we have the retained equity %
Exciting times!
No, spud, 2022 I think (p 18).
The really interesting question, which I haven't got any further insight on from this presentation or informal feedback from the meeting last week, is how much % retained equity might Infa reasonably negotiate with the equity partner, either for Phase 1 or both Phases.
Based on a 35/65 equity/debt split, that £120mn upper estimate for the first 2 caverns needs £42mn of equity. How will Infa's already sunk costs of £11mn be treated as a "credit" for its future partial ownership of IM? Does it mean that Infa already can justify retaining 25% stake, free carried? NPV(10) is £141mn. 25% of that is £35mn of full value, compared with £7mn MC currently. NOT including any reduction in equity requirement from a EU construction grant, and NOT including any future part-owned projects.
If Infa can get to FID, with a generous part-ownership of Phase 1 (and 2 in due course), with no further equity injection requirement, that would be a double whammy win for shareholders. Just imagine the relief felt in the market if no equity placing is required to get this project to FID, and construction.
Can anyone suggest how else IM might get financed, with Infa remaining involved closely?
Income generating next year is massive imo. Lots in the presentation , need to read it several times imo. Interesting slide on further projects that are ring fenced to keep value with infrastrata until we get it to a point on the risk wedge (profile) where equity partners are willing to take part.
Thanks, that's really interesting. I was wondering whether hydrogen was in their plans somewhere down the line and interesting that it is. I've been reading that energy experts are looking at blending gases even. Also I'm very encouraged too that 100s of millions of £s is being spent on NI gas pipelines.
https://www.infrastrataplc.com/investors/reports-presentations/
That was a good one, "the penny is finally dropping"!
I think the penny is finally dropping there is likely a positive RNS round the corner last chance at these relatively low prices.GLA
I think we all are O+W....some may have just joined the party other's have been waiting a bloody long time for the project to reach this critical stage
Lol, that's basically it O&W
I have to say that I am in Infa to make a good return on my invested capital by some entity trading gas profitably, and IM earning a leasing fee in the process. I am not here to sort out a UK-wide political mess over national energy policy.
Just get the first deal over the finishing line, please, JW.
Yep good point mcadder. Losing Rough has left a big whole in the gas trading world. The interest shown by offtakers has proved this! Traders just want to trade gas and like JW said in the conference call "all we need to do is get the gas moving" 23 caverns, reversal and twinning the SNIP will certainly get the gas moving!!!! GLA
Plus JW and the rest of the bod can turn round and say to the govt "we told you so" too in proving up the sheer need for the facility.... despite their refusal to ever acknowledge the UK had insufficient storage in part due to the National Grid's position that we have plenty of flexible available gas supplies. No guarantee of security of supply though when there is an outage, cracked pipeline, extreme weather, peak demand plus the decline of gas from the North sea, now Groningen and maybe one day Norway.
is going to be mega.......really exciting week coming!
The government position has always been "the market will respond" Which is exactly what it is doing with islandmagee! We have the demand with interested offtakers and will soon find out who our equity partners are to help us supply that demand. Then the government will just say "we told you so"
Certainly worth the effort writing to your MP Snowman with trying to spread the word even if the answer you get back isn't the one we usually expect. The one good thing here though is that if we potentially get 4 offers of finance from 4 stakeholders and the EU grant by Feb it would be an embarrassment to the govt who have so far refused to subsidise investment in gas storage. On the plus side for us though they (the govt) will not be able to take any credit for getting this asset of national importance developed.
So what do we know so far? That we have received 3 term sheets from stakeholders with potentially another one winging it's way to us. Plus the expectation for offtakers to pile in here in quick succession straight after equity funding news which is due any day now. Then Jeremy Clarkson might say....Probably the best gas storage facility.........in the world