Headlines:
- High Gas and Electricity Wholesale costs.
- Potential for further disruption to Gas imports from Russia.
- EU Gas Storage levels are an improved 34% full, compared to 30% last year.
Energy Overview
As of the 3rd of May, Gas and Electricity Year Ahead Wholesale costs were lower, when compared to last month’s report. The Oil price is also lower at $105 per barrel, although there was within month volatility.
The continued uncertainty surrounding future Gas supplies from Russia is adding pressure to prices, although over the last month there has been some welcome stability. Russia’s demand for Gas to be purchased in roubles has been enforced, seeing both Poland and Bulgaria have their supplies suspended. Although the EU’s position is not to comply with what they see as “blackmail”, it appears a number of companies are finding a way around EU rules in order to make payments. EU members are divided as to what further measures can be taken to reduce energy purchases from Russia, with some countries more reliant than others on Gas and Oil imports.
The EU has set Gas Storage targets, with the intention of ensuring there are sufficient supplies for the winter. Storage is currently an improved 34% full compared to 30% last year and 63% in 2020. Lockdowns in China due to their zero tolerance towards Covid, means that Europe is receiving additional LNG deliveries.
The Met Office forecast suggests seasonal norm temperatures and slight winds during May, which would mean another month of high Gas demand for Electricity generation.
What does this mean for me?
Wholesale prices for 2022 remain very high when compared to recent years. Prices for 2023 and 2024 show better value. Generally, the Wholesale element makes up in the region of just 40% of the total cost of an Electricity bill and 60% for Gas, but these percentages are currently much higher, estimated in excess of 60% and 80%.
Increasing third-party costs are noticeable in Electricity contracts. These include Transmission, Distribution, Balancing and government policy levies, which ensure we have enough energy to meet demand and provide investment.
Over the next year, the way these charges are calculated will change, under the Targeted Charging Review. Energy suppliers can choose whether to fix Electricity contract costs, pass them through or leave that decision until a later date. This does allow for the possibility of a review of the Distribution, Transmission and Balancing charges in some fixed price Electricity contracts. The Transmission element changes will be delayed until at least April 2023.
Indigo Swan will be working closely with energy suppliers to best help all our customers through this worrying time, where there is a great deal of uncertainty as to developments in Ukraine and the impact they have on energy costs. Some suppliers are still hesitant to provide contract offers and they may be withdrawn at short notice.
We would advise looking at your options for contracts ending Q3, and monitoring the remainder of 2022. There is an opportunity to contract for two or three years to dilute the impact of the higher short-term costs.
Please contact us on 0333 320 0475 to discuss options or to get a latest update.
Gas market overview
On the 3rd of May, the Gas Year Ahead Wholesale cost was 207.15p/th, down from 253.45p/th in last month’s report and 242% higher than 2021. Prices for 2023 and 2024 are considerably lower.
The possibility that the EU may impose restrictions on Russian Gas supplies or that Russia may cut off more countries due to payments not being made in roubles, continues to inflate energy prices. The impact of reduced supplies would mean attempting to source from elsewhere, most likely at a premium. It is unclear whether those companies that have found a way to comply with Russia’s payment demand, will face action by the EU.
EU members are exploring how they can reduce their dependence on Russian fuels, but are divided as to the timescale this can be achieved. Additional LNG supplies have become available due to a reduced demand from China and arrangements with the US.
Gas Storage levels will continue to be closely watched, with the EU setting targets to ensure there are sufficient supplies for the coming winter. Earlier in the year, stocks were almost 18% lower than 2021, but are currently 4% higher.
Let us know if you would like us to research your options for 12, 24 and 36 month contracts.
Electricity market overview
On the 3rd of May, the Electricity Year Ahead Wholesale cost was £201.35/MWh, down from £220.10/MWh in last month’s report and 187% higher than 2021. Prices for 2023 and 2024 are considerably lower.
Gas contributed a high 42% of generation in April, compared to 38% in March and just 24% in February, meaning Electricity Wholesale prices continue to closely follow Gas. It was another month of low Wind supplies at 20%, with May likely to be at a similar level. By comparison, February saw 35%.
Due to the reliance on Gas generation in the UK, Electricity prices are impacted by the events in Ukraine and the actions taken by both sides. Should Gas supplies be reduced, either due to EU sanctions or Russia’s refusal to sell to “unfriendly” countries, we would expect more volatility. As France has forecast lower Nuclear generation this year, potentially reducing import opportunities to the UK, any additional supply concerns may have an exaggerated impact on Wholesale prices.
The National Grid has mechanisms in place to secure additional supplies or reduce demand. These do come at a cost premium, in the form of higher third-party charges within Electricity bills, but provide an element of stability to prices which otherwise may react even more dramatically.
Let us know if you would like us to research your options for 12, 24 and 36 month contracts.
