Overview
As of the 10th July, Gas and Electricity Year Ahead Wholesale costs are higher when compared to last month’s report.
Over the last month, Oil has held steady at around $41/bbl with a peak of $43.29/bbl in early July. Continuing low demand levels globally have dampened Oil prices. Ongoing lockdown measures have resulted in a supply and demand mismatch, leading to the International Energy Agency forecasting a global demand drop of 7.9mn barrels per day (bpd) in 2020. Typical global demand is 100mn bpd, but it is now expected to be around 92.1mn bdp. A “second wave” could see demand drop further.
Gas Wholesale costs are very competitive, as illustrated by our graph. There were 8 LNG deliveries in June, with 6 already to date in July. Use of Gas for generation was up to 39% in June from 29% in May.
Electricity Wholesale prices remain at 2016 levels but they are starting to rise. Wind’s contribution was stable for another month at 18%. Solar, biomass and continental Gas imports each contributed around 8%. Coal recorded another month with virtually no contribution to the generation mix. Coal power stations continue to close early, prior to a full shut down by 2024, to help meet carbon reduction targets.
The Met Office forecast for the next month suggests settled weather mainly in the south, with the north expecting rain and strong winds. Temperatures are expected to be average but the southeast could see “very warm” temperatures at times. The Renewables contribution is likely to be modest, requiring some more use of Gas generation.
What does this mean for me…?
Wholesale prices show very good value, but it should be remembered that the Wholesale element makes up in the region of just 40% of the total cost of an Electricity bill. Gas is roughly 55%.
The influence of higher third-party costs is increasingly noticeable in Electricity contracts. These include, Transportation, Distribution and government policy levies.
Over the next few years, the way some of these charges are calculated will change, under the Targeted Charging Review, although the details are not yet available. Initially the first change to Transportation costs was due April 2021, but with delays issuing price guidelines to energy suppliers, this has been postponed until April 2022. The planned change to Distribution charges is still set for April 2022. This does mean that the expected opening of some fixed priced contracts should not take place until 2022.
To benefit from the low Wholesale prices, we advise requesting supplier offers for all 2020 and early 2021 start contracts. Be aware that suppliers are tightening their credit requirements and reducing their risk appetite, but good forward contract options can still be negotiated.
Please contact us on 0333 320 0475 to discuss options or to get a latest update.
Gas Market
On 10th July, the Gas Year Ahead Wholesale cost was 30.07p/th, from 27.41p/th in last month’s report and 34% lower than 2019.
There were 8 LNG deliveries in June, down from 16 in May. The impact of the coronavirus continues to reduce global Gas demand and prices. Although some regions, including the UK, are easing national lockdown measures, Storage levels continue to be high for the time of year. But cooler weather and reduced flows through the Langeled pipeline have helped support prices through June.
Gas demand continues to fall owing to the lockdown affecting a range of businesses. Published figures from the European Commission show a drop in continental demand of 5% year-on-year (covering Jan to Mar 2020), with expectations of further reductions as lockdown restrictions continued after March.
Oil has some historic contractual links with Gas prices. As oil prices stabilise and move higher, upward pressure could be felt in the Gas price. Prices will be supported following any sort of global recovery.
Let us know if you would like us to research your options for 12, 24 and 36 month contracts.
Electricity Market
On 10th July, the Electricity Year Ahead Wholesale cost was £42.86/MWh, from £38.53/MWh in last month’s report and 17% lower than 2019.
Electricity demand in the UK has fallen by around one fifth since the lockdown was introduced in March, but with businesses and manufacturing trying to find the “new normal” expectations are that demand will begin to pick up again in the coming weeks and months. Coal came back into the generation mix in June but only contributed 0.3%.
Gas remains the primary source for electricity generation (39%) and it is nearly matched by a combination of Wind, Solar, Hydro, Pumped Storage and Biomass (35%). The steady increase of Renewables on the system allows the Electricity price to remain stable. The Gas price is, however, still the main driver behind Electricity prices so any movement in Gas is directly felt in Electricity.
Third Party Charges continue to increase regardless of how the Wholesale element changes. These charges typically pay for the mechanisms, securing generation at peak periods.
Let us know if you would like us to research your options for 12, 24 and 36 month contracts.
