Centrica Energy Trading A/S Annual Report 2023

Helping change how we power the world

The energy landscape is transitioning – with a projected 4.9T EUR of sustainable investments needed by 2050 to transform the European energy grid to be powered entirely by renewables.

Looking to accelerate that transition, under REPowerEU, the EU’s binding target for the share of renewable energy in the system was increased to 42.5% by 2030, with an ambition to reach almost 45%. Achieving this requires that we double the existing share of renewable energy in the EU by 2030.

One of the most important enabling frameworks for renewables are PPAs and CPPAs. These are essential market-based instruments, providing investors and developers with the financial security needed to contribute with the sustainable investments needed to drive deployment and penetration of renewables, and decarbonisation pathways for corporates looking to achieve their sustainable sourcing strategy.

Capturing growth potential across PPA markets 

To keep evolving on our ability to deliver on the growth potential in PPA markets, we’re focused on developing and refining sophisticated long-term solutions needed to accommodate evolving demand for risk management, temporal matching, and multi-asset structures.

“Since offering our first long-term PPA in the UK in 2005, we’ve been building and perfecting the commercial engine needed to deliver custom market-based solutions – in 2007 we expanded our capabilities to the Nordics, and today we have assets under contract across 14 European countries.” said Kristian Gjerløv-Juel, Vice President of Renewable Energy Trading & Optimisation.

2023 was a strong year for PPAs, with demand rising 44% from 2022, and a new total disclosed volume of 16.2GW registered across Europe. More than 50% of that volume was disclosed in Germany and Spain.

Delivering renewable agreements in new and core markets 

It was also the year where we moved into Baltic PPA markets, signing two PPAs with Enery for Estonian solar power followed by two agreements with Taaleri for wind in Lithuania. The combination of abundant renewable energy sources and a supportive regulatory environment are accelerating the potential for long-term renewable offtake and sourcing agreements in the Baltic region, with promising market potential going forward.

We also continued to firm major agreements with developers, investors, and corporates in our core markets. We signed a long-term Corporate PPA with leading telecoms provider Vodafone UK, and we delivered several agreements in Germany with major mobility and infrastructure providers Deutsche Bahn and Fraport – helping these organisations deliver on their net zero sourcing strategies.

“The race is on for European businesses to deliver on their market based scope 2 commitments. We’re here to support that with delivery on bankable long-term PPAs, matching the need for long-term revenue predictability for investors in solar projects, market and credit risks, and corporate needs for sustainable energy sourcing. In the coming years, sourcing energy through renewable PPAs will be a real competitive parameter, and we will only see the race intensifying. We are here to create an opportunity to participate on the right terms.” said Kristian in his closing remarks. 

Energising green gas grids 

Reaching an almost 40% share of biomethane in the grid during 2023, Danish bioenergy markets are among the most evolved in the world. They’re also where we’ve spent the last 20 years developing the competencies to offtake, manage, and optimise the production of biomethane, displacing natural gas with a cleaner and more supply resilient alternative. 

Zooming out to the broader EU, natural gas remains an important transition fuel for many member states for whom natural gas still accounts for approximately 40% of electricity generation. The ambition is for REPowerEU to change this, boosting biomethane production from 3.5 bcm in 2021 to 35 bcm by 2030 – requiring an estimated €37 billion in funding towards 2030. Biomethane has an important role to play in diversifying the Union’s gas supplies and reducing exposure to volatility in natural gas prices, but it’s also critical to achieving EU’s clean energy objectives, where biogas can reduce emissions in excess of 90% on a life cycle basis when compared to natural gas.

Evolving our capabilities to enter new markets 

Most recently we’ve expanded our biomethane capabilities to the UK market, and as Kristina Høgh, our Director for RET&O Origination and Contract Management, explains, that move is an important part of our commitment to providing the market-based solutions and incentives needed to deliver on the energy transition:

“Succeeding with the green transition requires that we use all the tools at our disposal – that means renewables, batteries, and electrolysers, but also tools and technologies that enable decarbonisation in sectors where electrification falls short. In parallel to our work with renewable PPAs and CPPAs, and optimisation of flexible and energy storage technologies, our Bioenergy teams are dedicated to accelerating the development and demand for low-carbon fuels, supporting decarbonisation of hard-to-abate sectors, and enabling these businesses to deliver on their green procurement strategies.”

Long-term agreement with Yorkshire Water 

Putting words into action, in 2023 we signed a landmark agreement with Yorkshire Water to manage several biomethane gas-to-grid sites. Expected to be operational by 2025, these sites will produce approximately 125 GWh of biomethane every year – enough to heat more than 10,000 UK households. 

On what the agreement means to her, Kristina added:

“I’m proud that we’ve got the scale and trading expertise to enable these types of agreements and act as a long-term stable partner. Moving forward, we’re continuing to bring in specialist resources with expertise in the European and UK biomethane industry, and that’s allowing us to evolve our value proposition and craft these unique long-term Green Gas Purchasing Agreements.”

New paradigms in European gas 

With EU Member States demanding approximately 350 bcm of natural gas every year, the halt in flows of Russian pipeline gas to European markets through 2022 and 2023 meant that Europe had to seek out new supplies among global partners and convince regional actors to increase their pipeline imports.

With 25% of EU’s energy mix consisting of gas, and domestic production only able to accommodate approximately 10% of demand, European gas markets have undergone dramatic changes in recent years. Imports of liquified natural gas (LNG) shipped across the seas from producers in the United States and Asia-Pacific region has boomed, coupled with an increased reliance on familiar partners in Norway and North Africa to increase the volume of pipeline gas made available. This transition was at the very heart of the European energy crisis, driving market volatility in a scenario where gas consistently set the market clearing price on electricity. 

Operating across the gas value chain 

Just across the North Sea, our UK colleagues in Centrica Energy Ltd operate as LNG experts and traders – in 2023 delivering a major sourcing agreement with Delfin Midstream for 1 million tonnes of LNG (approximately 1.4 bcm of natural gas) in 2023, and in 2022 firming an agreement with Equinor to secure additional pipeline exports of 1 bcm of natural gas annually for three years. 

Once gas supplies enter the European market, our Gas Trading & Asset Management teams in Centrica Energy take lead on supporting gas storage filling requirements and trading in the very short-term markets to support TSO balancing and ensure that demand for gas in individual and across markets is always met. Gas storages are the backbone of European security of supply, and through managing storages our teams help provide certainty on the availability of energy, reducing volatility and price levels in the market.

Gas storages deliver lower volatility and price levels 

During 2023 reductions in energy demand and strong renewable generation coupled with a mild winter allowed for European gas storages to remain at a record-high 56% of capacity in April of 2023 (26% in 2022), increasing to 99% storage levels by November. Emerging from the winter of 2022/23 with record-high supply levels sent gas prices trending down through the year, with similar price drops in power markets illustrating the cross-commodity dynamics in energy markets. 

Reflecting on the market and our performance, our Director of Gas Trading Søren Blad said:

“Operating in a bearish, and less volatile market, our Gas Trading teams have delivered excellent performance. It’s clear that our advanced trading and hedging strategies and robust risk framework have allowed us to successfully navigate markets undergoing significant transformations, and going forward we continue to make the investments in our trading teams and platforms necessary to remain one step ahead of the gas curve and secure the future-proof capabilities needed to operate markets for hydrogen and sustainable fuels in the not-too-distant future”.

Positioned to expand and capture global trends

Expanding our gas trading business to new markets, during 2023 we began gas trading in Croatia, and expanded our green gas business to the UK. We have leveraged our long-standing setup and competencies in gas markets to trade biomethane and new green gas products and moving forward we’re evolving and future-proofing these capabilities to keep up with key energy trends including decarbonisation and globalisation of gas.