The ever-changing landscape of the UK energy market

One of the key drivers for the UK to reach net-zero is the continued development of renewable energy projects to supply clean power to the grid and reduce carbon intensity. These projects can be powered by different energy solutions, including wind, wave, marine, hydro, biomass, or solar.

The recent report by the Intergovernmental Panel on Climate Change (IPCC) highlighted the urgent need for the world to transition away from fossil fuels to renewable energy. As this focus on reaching net-zero intensifies, particularly in the run-up to the key UN climate conference, COP26, we look at the role of the Renewable Energy Guarantees of Origin scheme (REGOs). This government scheme, which was established to support the energy transition away from fossil fuels, provides transparency about the proportion of electricity suppliers source from renewable generation.

The REGO scheme is part of the EU’s Renewable Energy Directive, which requires all EU Member States to report what proportion of electricity consumption is from renewable sources. Following Brexit, the REGO scheme is under review in the UK. However, it appears it is the Government’s intention for the scheme to continue. The UK is now in a position where it can review this scheme and decide on a future approach that could expedite the journey to net-zero whilst improving transparency.

Currently, the scheme works by granting one REGO certificate to a renewable generator for every megawatt-hour (MWh) of renewable electricity produced. Energy suppliers must purchase and “retire” REGO certificates as part of their Fuel Mix Disclosure Regulatory requirements, therefore evidencing to end consumers the proportion of power produced from various fuels (renewables, coal, gas, nuclear, etc.).

REGOs can be sold separately to the power with which they are associated. Suppliers often purchase these REGOs without the associated power generation to ‘green’ their fossil fuel-based supply. This means the certificates don’t necessarily support or incentivise the development of new renewable projects, or “additional” projects, often referred to as additionality.

Additionality is becoming increasingly important to customers. It enables them to clearly demonstrate that they are actively involved with a new renewable project, rather than just buying REGOs from an existing project. This is often achieved through a Power Purchase Agreement (PPA).

A customer will guarantee to purchase the power at an agreed price for an agreed length of time and receive the REGOs attached to that power through a PPA. This provides a level of certainty to the developer/investor of the renewable project to build it. The customer can claim the REGOs attached to this specific project and state that they are “additional REGOs”. It also has the benefit that a proportion of the customers’ electricity consumption will be fixed for the long term, which is usually more cost-effective than current energy market prices and also protects against rising electricity costs.

If an organisation is making a true commitment to zero carbon emissions like “Microsoft’s 100/100/0 vision and commitment for a decarbonized grid”, then REGOs are likely to play a smaller part. To truly operate with carbon neutrality 24/7, renewable technologies will need to be paired with energy storage and state-of-the-art energy optimisation to match supply and demand in real-time.

At Hartree Solutions, we can guide you through a net-zero strategy, signposting the best technologies to reduce your carbon from day one. We also have several options to help you access “additional” REGOs with both on-site and off-site solar. Additionally, for hard to abate emissions we can provide verified carbon offsets to set you on the right path from day one as part of your journey to net zero.

• The project will work with local farmers, landowners, cooperatives, and NGOs in Argentina, Chile, Paraguay and Uruguay
• The project will help design, finance, and develop nature-based carbon reduction and removal projects, aiming to achieve the highest level of accreditation
• The project targets the creation of over 300 million tonnes of voluntary carbon credits over 30 years

Hartree Partners and ecosecurities today announces an estimated $1.5bn project to work with local farmers, landowners, associations, co-operatives, and NGOs in the Cono-Sur region of Latin America.

Named Project Araucaria after one of the most endangered tree species in the region, this project will help design, finance, and develop nature-based carbon reduction and removal projects in Argentina, Chile, Paraguay and Uruguay, generating over 10 million tonnes of voluntary carbon credits each year.

Aggressive agricultural land use and conversion in Latin America now account for almost a third of global greenhouse gas emissions, and over half the deforestation in the world occurs. By working alongside people who own, farm, and support work on the land, Project Araucaria aims to reverse this trend by promoting the conservation and restoration of forests and implementing sustainable agricultural practices.

Ariel Perez, Partner at Hartree Partners, said:
“Reducing emissions is vital to halting devastating climate change; but it’s not enough. We also need to remove carbon that’s already in the atmosphere by restoring key habitats that have already been degraded and destroyed.

“Hartree’s project with ecosecurities will bring significant investment and expertise to farmers, agricultural producers, and landowners across Latin America by supporting their efforts to restore habitats and ecosystems, targeting the reduction and removal of carbon in the atmosphere by over 300 million tonnes.”

Ecosecurities, an impact-driven provider of environmental services with over two decades of experience in carbon emissions reduction and removal projects around the world, will use its on-the-ground presence in and knowledge of Latin America to engage farmers, producers, and landowners across the region. Ecosecurities aim to design and implement at least 20 projects and programmes.

Pablo Fernandez, CEO of ecosecurities, said:
“If we are to turn climate commitments into tangible action, we must develop solutions that deliver benefits for local people, nature and, as result, to the entire planet.

“This is why we are delighted to be partnering with Hartree to deliver Project Araucaria – a vitally important initiative that will promote sustainable production practices and, in turn, reduce global emissions.”

The portfolio aims to achieve certification under the Verified Carbon Standard (VCS) and receive Climate, Community and Biodiversity (CCB) status; it will be marketed by Vertree, a joint venture formed between Hartree Partners and sustainability leaders SYSTEMIQ.

Hartree Partners, a leading global energy and commodities trading company will invest, develop, manage, and market the projects, to help meet the surging demand for high quality Verified Emissions Reductions as businesses look to play their part in addressing the climate emergency.

As July closes, the UK has seen gas prices reach record-breaking levels. The gas market dynamics are constantly changing as different countries adapt their energy strategies to align with changes in demand and policy at national and international levels. The price of gas delivered in July was at a level never seen before and is reflective of the low storage levels of gas across Europe as we approach winter.

Previously the highest UK monthly outturn was in March 2013, where the month closed at 86.4 pence per therm (p/th), with the 2nd highest in December 2005 at 76.3p/th. July 2021 has closed at an unparalleled 90.6p/th, (as demonstrated in Graph 1 below), which will cause long term price increases at both business and domestic levels.

Due to low storage levels, there is a risk that Europe won’t have enough gas to meet demand in a cold winter. Europe has lost a significant amount of domestic flexibility with less gas production coming from the North Sea and relies heavily on liquified natural gas (LNG) imports to boost available supply. With LNG demand high globally, Europe must compete with other markets for supply, supporting higher prices.

In summer 2020, the market was well stocked with stored gas, as shown in Graph 2 above, so there were not the same shortages causing this year’s extreme pricing. However, this year, we have to compete with increasing Asian demand for LNG, causing gas to reach much higher price levels.

The shortage of gas was compounded by a late cold snap in April this year across Europe and a warm Asian summer. With unease around availability and apprehension of another cold winter, high prices indicate a fear there may not be enough gas to go around.

Will the price of gas continue to rise? Until there is a viable solution for the winter gas storage situation, prices are expected to remain high into the future, as demonstrated in Graph 3 below. The tightness could continue into next year if we finish the year with close to empty storage. With Nord Stream 2 nearing completion, there could be some easing of prices for European gas with more availability of gas flowing from Russia into Europe.

For Businesses, increasing energy costs are never easy to absorb. By looking at energy efficient strategies, optimising energy usage on-site and selecting a supply contract that can flex to the changing dynamics of the energy market, businesses can minimise some of this exposure. Customers’ bills are likely to rise upon their next renewal due to these market price rises.

• Hartree Partners and Wildlife Works sign landmark voluntary carbon market deal
• Over 20 new high-impact projects will be implemented in collaboration with forest communities to protect threatened landscapes in Africa, Asia, and Latin America
• Project portfolio to generate 20 million tonnes of Verified Emission Reductions (VERs) each year for the 30-year life of the projects

Hartree Partners and Wildlife Works announce a ground-breaking deal that will generate over $2bn of private sector investment to enable communities to protect biodiversity and forests at risk from deforestation.

13 million hectares of tropical forest, an area the size of Greece, is currently lost to deforestation every year. But, to keep the increase in global temperature below 1.5 degrees in line with the Paris Agreement, more than three quarters of deforestation must be stopped by 2030. Thousands of companies are addressing the climate emergency and, with voluntary carbon markets playing an increasingly prominent role, the demand for Verified Emissions Reductions (VERs) is forecast to outstrip supply.

Hartree Partners, a leading global energy and commodities trading company, and Wildlife Works, an innovative global conservation company, will help meet this surging demand by partnering to invest, develop, manage and market one of the world’s largest portfolios of avoided deforestation projects. Hartree’s investment is effective immediately, with the projects expected to begin delivering VERs by 2023.

The deal, which will increase the availability of high-quality, verified, avoided deforestation projects by approximately 40%, will reduce emissions from deforestation by 20 million tonnes each year and 600 million tonnes over the 30-year life of the projects – equivalent to taking 4.3 million cars off the road.

The partnership will develop more than 20 high-impact projects in collaboration with local communities to improve livelihoods while preserving and protecting forests and wildlife.

The ground-breaking deal was facilitated by Everland, the exclusive marketing partner of Wildlife Works. The portfolio will be marketed by Everland and Vertree, a joint venture formed between Hartree Partners and sustainability leaders SYSTEMIQ.

Ariel Perez, Partner at Hartree Partners, said:
“The scientific community agrees that the world cannot keep the increase in global temperature below 1.5 degrees without significant support from global businesses. Hartree Partners is proud to be providing substantial long-term investment in nature-based solutions through this partnership. We’re delighted to be working with such experienced partners as Wildlife Works to ensure that these projects reduce emissions, protect highly threatened species, and enhance the wellbeing of thousands of people in these forest communities who hold the key to stopping deforestation.”

Mike Korchinsky, Founder and CEO of Wildlife Works, said:
“While those in the Global North continue to debate what they want from climate action, our partners in the Global South urgently need just and effective solutions now. With Hartree Partners’ financial backing and carbon market expertise, we can implement our just and inclusive climate, community, and biodiversity solutions in many more forest communities where they’re desperately needed.”

Wildlife Works’ proven approach addresses the drivers of deforestation in last-chance ecosystems while rewarding communities for protecting forests and biodiversity.

The portfolio of projects announced today will meet global best practice standards for nested projects under VERRA, including: the Voluntary Carbon Standard (VCS); the Climate, Community and Biodiversity (CCB) standard at the gold level; and the SD Vista standard to verify project contributions to the UN Sustainable Development Goals, and can make a significant contribution to host country Nationally Determined Contributions (NDC) under the Paris Agreement.

Gerald Prolman, CEO of Everland, said:
“Hartree’s financial commitment to Wildlife Works will help give forest governments, landowners, and communities long-term financial confidence as they consider valuing their standing forests under REDD+. The VERs will be offered to businesses as an essential tool they can use as part of their transition plan towards a low-carbon future. It is our hope that this partnership’s bold commitment to rapidly scale REDD+ projects will inspire more private sector action at the critical speed and magnitude that is so desperately needed.”

As the energy revolution advances, the UK grid continues to transition towards a more sustainable future. Until the UK is at the point where it can run 100% of the time on 100% renewable energy, it needs some additional support as it moves further and further away from large scale coal-fired plants. During this time of transition, additional resources are needed to support the National Grid to ensure businesses can continue to operate and domestic consumers are not impacted. The need for grid flexibility has increased in importance with so many people working from home during the Covid-19 pandemic.

This week our Peterlee site took delivery of two 2MW units that will be available to support the National Grid. The onsite generation units will provide balancing services and flexibility as the UK grid continues to try and balance the growing renewable assets available. By setting up another site, we ensure we are playing our part in keeping a consistent power supply to the UK. Once fully commissioned this site will be able to provide an additional 4MW of power to the grid when it needs it most.