UK: UK Power Generation Assets: Optimisation And Monetisation


In recent years, the UK power sector has seen owners and/or operators of generation assets increasingly reflect on their commercial strategies with respect to their operations. In the case of power plants, this has involved a consideration of divestment or strategies for optimising these assets. This focus on the efficiency and optimisation of assets has been a key feature for market participants in the past few years, and has also facilitated the increased diversification of market entrants.

One of the primary objectives for an existing owner/operator, or an entity acquiring such an asset (Owner) will be to achieve optimal monetisation – maximising the gross margin from selling a unit of electricity in relation to the available capacity of a power plant. This is more commonly referred to as the "clean dark spread" (in the case of coal-fired generation), or "clean spark spread" (in the case of gas-fired generation).

Therefore, Owners will need to consider the extent to which they need to balance "in-house" capability alongside procuring energy management services from a third party for the purposes of achieving the above.

This article considers some of the key drivers behind this trend in the market and the kinds of services that Owners will need to access in order to achieve their objectives.

Drivers of this trend

Regulatory impact on existing providers of energy management services While the power markets are seeing some new entrants, regulatory changes have led to some of the incumbent market participants cutting back on their energy trading activities.

For example, some investment banks who previously provided, or were able to provide, energy management services have reduced the scope of their capabilities in this area, or have curtailed their involvement in this market.

Additionally, some energy companies have disposed of power plants in the UK to allay competition concerns raised by the European Commission.

This has led to opportunities for other participants to step in and provide these services or for Owners to consider self-provision.

Security of supply Issues concerning security of power supply have seen the emergence of so-called 'flight to physical' investment strategies by a diverse range of investors, from pension funds to banks to infrastructure companies, due to the (perceived) investment solidity in owning and/or trading around these assets. Such investment, it is thought, allows participants to arbitrage physical market exposure with appropriate hedging, supply and logistical systems/arrangements in place.

Greater certainty within the domestic regulatory landscape The UK Government's Electricity Market Reform (EMR) programme represents the single biggest transformation to the UK's electricity market in a generation. The development of the EMR has been underway for over three years. During much of this time, there has been considerable uncertainty as to the precise scope of the market reforms to be implemented. The past several months, however, have seen numerous significant and long-awaited developments, which have brought more certainty to the EMR, particularly around contracts for differences and the capacity market. This has helped to bring a level of confidence to those in the market who previously had been deterred from new investment.

Energy management services

In recent years, increasingly sophisticated trading services have been put in place between energy trading merchants (as Services Provider) and Owners, whereby the Services Provider provides energy management and trading services that encompass fuel input, power offtake, balance sheet functions, emissions allowances, credit functions, banking products and IT systems, often on a 24-hour, seven-day a week basis.

A key driver for this type of strategy has been the ability of Owners to leverage off the sophisticated derivatives trading and hedging capabilities that a Services Provider has. In addition to these trading capabilities, maximising the "spread" will involve a combination of physical and financial trading strategies which it might be difficult for Owners to self-provide.

Owners or Services Providers that are considering monetisation strategies will need to consider (amongst other things) the following issues in determining the level of services to be procured or provided respectively. It is important to involve a party which knows the industry and has appropriate experience from the outset.

a. Trading strategy – in order to maximise the dark or spark spread, the parties will need to agree upon forward looking hedging strategies dealing with fuel procurement, power offtake and how emissions allowances will be dealt with. This should take into account the capacity of the power plant being made available for the optimisation services, and matters such as planned outages. This will include strategies around how much power to sell into the balancing market on a day, week, month and season ahead basis.

b. Route to market services – the parties will need to agree the basis upon which the Services Provider will seek trading opportunities in the wholesale electricity, coal/gas (depending on fuel input), and emissions markets to make the relevant physical and financial trades.

c. Hedging and strategy team and recording – there will be a discussion around which individuals, particularly on the side of the Services Provider, will be engaged to undertake the relevant obligations and responsibilities assumed under the services arrangement. The parties will also need to agree upon how various transactions will be entered into and recorded, which may include some or all of the following types of trades:

i. Optimisation trades, including trades undertaken on a within-day, week ahead, month ahead, or season ahead basis.

ii. Any trades that are required to reduce exposure to imbalances.

d. Communication – processes and policies will need to be implemented to govern the basis on which communications between the control room, representatives of the Services Provider and the transmission system operator are to be made. If the optimisation services are not to be undertaken on a 24/7 basis, then consideration will also need to be given as to how handover to an overnight team is to be effected.

e. Market Information Services – in order for the Owner to establish, along with the Services Provider, trading strategies (as identified above), there will need to be agreement as to the types of data that the Services Provider will provide to the Owner. This data can relate to the physical and financial power markets, the coal or gas markets as applicable, and in relation to the emissions markets.

f. Information control – the Regulation on Energy Market Integrity and Transparency (REMIT) has placed prohibitions in relation to the use of inside information and market manipulation, and introduced disclosure obligations regarding planned outages of a power plant. Therefore, systems and controls will need to be established in relation to the compliant passing of such information to the Services Provider and its dissemination to the wider market, as well as limitations on trading at times when such information has not been publicly disclosed.

g. Other – further areas that will be relevant to structuring an energy management services arrangement will include: how imbalances and other charges will be dealt with; the basis for billing and calculation; IT issues; the treatment of fees; costs and payments (such as hedging payments, trading costs and payments, and profit share payments); and terms that will be applicable to underlying transactions entered into pursuant to the optimisation strategy (e.g. financial trades being governed by an ISDA Master Agreement).

Conclusion: likely prospective trends

There is expected to be a continued review of commercial strategies relating to UK power generation assets through a combination of: (1) new market entrants, be it an Owner or Services Provider; (2) the expiry of traditional long term fuel supply arrangements to a power plant; and (3) greater regulatory certainty. There are likely to be increasing opportunities in this area for market participants, but greater regulatory certainty goes hand in hand with greater regulatory scrutiny. Therefore, both Owners and Services Providers will need to ensure that they consider their respective regulatory positions when contemplating structures that involve a convergence of physical and financial trading and route to market services.

The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.

To print this article, all you need is to be registered on

Click to Login as an existing user or Register so you can print this article.

In association with
Related Topics
Related Articles
Related Video
Up-coming Events Search
Font Size:
Mondaq on Twitter
Register for Access and our Free Biweekly Alert for
This service is completely free. Access 250,000 archived articles from 100+ countries and get a personalised email twice a week covering developments (and yes, our lawyers like to think you’ve read our Disclaimer).
Email Address
Company Name
Confirm Password
Mondaq Topics -- Select your Interests
 Law Performance
 Law Practice
 Media & IT
 Real Estate
 Wealth Mgt
Asia Pacific
European Union
Latin America
Middle East
United States
Worldwide Updates
Registration (you must scroll down to set your data preferences)

Mondaq Ltd requires you to register and provide information that personally identifies you, including your content preferences, for three primary purposes (full details of Mondaq’s use of your personal data can be found in our Privacy and Cookies Notice):

  • To allow you to personalize the Mondaq websites you are visiting to show content ("Content") relevant to your interests.
  • To enable features such as password reminder, news alerts, email a colleague, and linking from Mondaq (and its affiliate sites) to your website.
  • To produce demographic feedback for our content providers ("Contributors") who contribute Content for free for your use.

Mondaq hopes that our registered users will support us in maintaining our free to view business model by consenting to our use of your personal data as described below.

Mondaq has a "free to view" business model. Our services are paid for by Contributors in exchange for Mondaq providing them with access to information about who accesses their content. Once personal data is transferred to our Contributors they become a data controller of this personal data. They use it to measure the response that their articles are receiving, as a form of market research. They may also use it to provide Mondaq users with information about their products and services.

Details of each Contributor to which your personal data will be transferred is clearly stated within the Content that you access. For full details of how this Contributor will use your personal data, you should review the Contributor’s own Privacy Notice.

Please indicate your preference below:

Yes, I am happy to support Mondaq in maintaining its free to view business model by agreeing to allow Mondaq to share my personal data with Contributors whose Content I access
No, I do not want Mondaq to share my personal data with Contributors

Also please let us know whether you are happy to receive communications promoting products and services offered by Mondaq:

Yes, I am happy to received promotional communications from Mondaq
No, please do not send me promotional communications from Mondaq
Terms & Conditions (the Website) is owned and managed by Mondaq Ltd (Mondaq). Mondaq grants you a non-exclusive, revocable licence to access the Website and associated services, such as the Mondaq News Alerts (Services), subject to and in consideration of your compliance with the following terms and conditions of use (Terms). Your use of the Website and/or Services constitutes your agreement to the Terms. Mondaq may terminate your use of the Website and Services if you are in breach of these Terms or if Mondaq decides to terminate the licence granted hereunder for any reason whatsoever.

Use of

To Use you must be: eighteen (18) years old or over; legally capable of entering into binding contracts; and not in any way prohibited by the applicable law to enter into these Terms in the jurisdiction which you are currently located.

You may use the Website as an unregistered user, however, you are required to register as a user if you wish to read the full text of the Content or to receive the Services.

You may not modify, publish, transmit, transfer or sell, reproduce, create derivative works from, distribute, perform, link, display, or in any way exploit any of the Content, in whole or in part, except as expressly permitted in these Terms or with the prior written consent of Mondaq. You may not use electronic or other means to extract details or information from the Content. Nor shall you extract information about users or Contributors in order to offer them any services or products.

In your use of the Website and/or Services you shall: comply with all applicable laws, regulations, directives and legislations which apply to your Use of the Website and/or Services in whatever country you are physically located including without limitation any and all consumer law, export control laws and regulations; provide to us true, correct and accurate information and promptly inform us in the event that any information that you have provided to us changes or becomes inaccurate; notify Mondaq immediately of any circumstances where you have reason to believe that any Intellectual Property Rights or any other rights of any third party may have been infringed; co-operate with reasonable security or other checks or requests for information made by Mondaq from time to time; and at all times be fully liable for the breach of any of these Terms by a third party using your login details to access the Website and/or Services

however, you shall not: do anything likely to impair, interfere with or damage or cause harm or distress to any persons, or the network; do anything that will infringe any Intellectual Property Rights or other rights of Mondaq or any third party; or use the Website, Services and/or Content otherwise than in accordance with these Terms; use any trade marks or service marks of Mondaq or the Contributors, or do anything which may be seen to take unfair advantage of the reputation and goodwill of Mondaq or the Contributors, or the Website, Services and/or Content.

Mondaq reserves the right, in its sole discretion, to take any action that it deems necessary and appropriate in the event it considers that there is a breach or threatened breach of the Terms.

Mondaq’s Rights and Obligations

Unless otherwise expressly set out to the contrary, nothing in these Terms shall serve to transfer from Mondaq to you, any Intellectual Property Rights owned by and/or licensed to Mondaq and all rights, title and interest in and to such Intellectual Property Rights will remain exclusively with Mondaq and/or its licensors.

Mondaq shall use its reasonable endeavours to make the Website and Services available to you at all times, but we cannot guarantee an uninterrupted and fault free service.

Mondaq reserves the right to make changes to the services and/or the Website or part thereof, from time to time, and we may add, remove, modify and/or vary any elements of features and functionalities of the Website or the services.

Mondaq also reserves the right from time to time to monitor your Use of the Website and/or services.


The Content is general information only. It is not intended to constitute legal advice or seek to be the complete and comprehensive statement of the law, nor is it intended to address your specific requirements or provide advice on which reliance should be placed. Mondaq and/or its Contributors and other suppliers make no representations about the suitability of the information contained in the Content for any purpose. All Content provided "as is" without warranty of any kind. Mondaq and/or its Contributors and other suppliers hereby exclude and disclaim all representations, warranties or guarantees with regard to the Content, including all implied warranties and conditions of merchantability, fitness for a particular purpose, title and non-infringement. To the maximum extent permitted by law, Mondaq expressly excludes all representations, warranties, obligations, and liabilities arising out of or in connection with all Content. In no event shall Mondaq and/or its respective suppliers be liable for any special, indirect or consequential damages or any damages whatsoever resulting from loss of use, data or profits, whether in an action of contract, negligence or other tortious action, arising out of or in connection with the use of the Content or performance of Mondaq’s Services.


Mondaq may alter or amend these Terms by amending them on the Website. By continuing to Use the Services and/or the Website after such amendment, you will be deemed to have accepted any amendment to these Terms.

These Terms shall be governed by and construed in accordance with the laws of England and Wales and you irrevocably submit to the exclusive jurisdiction of the courts of England and Wales to settle any dispute which may arise out of or in connection with these Terms. If you live outside the United Kingdom, English law shall apply only to the extent that English law shall not deprive you of any legal protection accorded in accordance with the law of the place where you are habitually resident ("Local Law"). In the event English law deprives you of any legal protection which is accorded to you under Local Law, then these terms shall be governed by Local Law and any dispute or claim arising out of or in connection with these Terms shall be subject to the non-exclusive jurisdiction of the courts where you are habitually resident.

You may print and keep a copy of these Terms, which form the entire agreement between you and Mondaq and supersede any other communications or advertising in respect of the Service and/or the Website.

No delay in exercising or non-exercise by you and/or Mondaq of any of its rights under or in connection with these Terms shall operate as a waiver or release of each of your or Mondaq’s right. Rather, any such waiver or release must be specifically granted in writing signed by the party granting it.

If any part of these Terms is held unenforceable, that part shall be enforced to the maximum extent permissible so as to give effect to the intent of the parties, and the Terms shall continue in full force and effect.

Mondaq shall not incur any liability to you on account of any loss or damage resulting from any delay or failure to perform all or any part of these Terms if such delay or failure is caused, in whole or in part, by events, occurrences, or causes beyond the control of Mondaq. Such events, occurrences or causes will include, without limitation, acts of God, strikes, lockouts, server and network failure, riots, acts of war, earthquakes, fire and explosions.

By clicking Register you state you have read and agree to our Terms and Conditions