Headlines:
- Gas and Electricity Wholesale prices are higher than last month
- A number of potential Gas supply issues are adding a premium to prices
- EU Gas Storage levels are lower at 82% full compared to 91% last year
Energy Overview
As of the 10th of December, Gas and Electricity Year Ahead Wholesale costs were higher than in last month’s report.
We saw further price volatility through November as markets factored in a whole range of potential issues, but the focus remained on EU Gas Storage, which at 82% full is far lower than the 91% last year. This is most likely due to lower temperatures across Europe increasing heating demand but also less LNG deliveries, as they have headed to Asia, attracted by the price premium.
With the Ukraine / Russia transit deal ending in January and currently no alternate route, Gas imports will be reduced further, which may result in a higher rate of Storage withdrawals and lower injections later in the year for winter 2025/26.
Events in the Middle East are very fluid. Tensions between Israel and its neighbours have eased and the Syrian regime, backed by Iran and Russia has fallen to rebels, largely backed by western nations. This creates some uncertainty as to the stability of Oil and Gas exports from the region.
Electricity prices are following Gas movements due to it being a main, reliable and flexible source of generation.
What does this mean for me?
The energy industry has changed how it recovers Electricity Distribution, Transmission and Balancing costs, under the Targeted Charging Review. This has moved some charges away from being based on the energy used and billed in the unit rate, to fixed charges incorporated within the Standing Charge or as separate items. This should give both the customer and the industry a more accurate way of calculating budgets, but the change has become noticeable within energy bills and created concern. Over the next two years, there is a quite confused picture of increases and decreases in Transmission and Distribution charges, which energy suppliers will be billing customers.
From April 2024 most customers saw a decrease in Transmission which is likely to be followed by an increase in this fixed charge from April 2025, almost completely replacing what used to be recovered through Triads. Distribution costs are a little more complicated with the average fixed annual cost increasing across networks from April 2024 but decreasing from April 2025. Another element, the Available Capacity (AC), has already seen small increases but is due for a more significant rise from April 2025. This does mean that by managing the Agreed Supply Capacity, there is an opportunity to reduce the AC cost and longer term possibly lower the Band which determines fixed charges.
There is an expectation that Balancing costs will continue to increase.
Indigo Swan works closely with energy suppliers to help all our customers understand and manage changes.
Please contact us on 0333 320 0475 to discuss options or to get a latest update.
Gas market overview
On the 10th of December, the Gas Year Ahead Wholesale cost was 107.29p/th, up from 98.24p/th in last month’s report and 4% more than 2023. Although the increase is significant, over the last month prices reached 114p/th before easing through December.
The return of LNG shipments to Europe is a factor as to why prices have fallen from the recent highs. It is hoped that with a lower demand from Asia, the additional supplies could help this winter and ease the reductions of EU Gas Storage, which at 82% full are far lower than last year’s 91%.
In January Russian Gas imports will reduce as the Ukraine transit deal ends. Should another route be found, it would remove an upward price pressure. The US has applied sanctions against Gazprombank, which is widely used to pay for Russian Gas. President Putin has previously been very strict regarding payment methods, which he appears to have relaxed. It is unclear what the eventual outcome will be, with Hungary and Turkey asking the US for an exemption for Gas payments.
The direction of Wholesale prices is uncertain with a number of events potentially either reducing Gas supplies or increasing demand. We would advise discussing your options for contracts ending in 2024 and early 2025 or at least monitoring the position closely.
Electricity market overview
On the 10th of December, the Electricity Year Ahead Wholesale cost was £85.25/MWh, up from £80.41/MWh in last month’s report and 9% less than 2023. Prices did reach 92.13p/th before easing through December.
Gas continues to dictate Electricity’s price direction due to its scale and cost, being a flexible and reliable source of generation when Renewables are erratic. In November, just 22% of generation was from Wind, a high 40% from Gas and 14% Imports from Europe via the Interconnectors. Over the last week, Wind has been higher at 33%, reducing the use of Gas. It is expected that we will have more spare generation capacity this winter, aided by the new look Demand Flexibility Service, a tool to help cost effectively balance the network.
There are a number of concerns for the availability of Gas both this winter and 2025/26. The end of the transit deal between Russia and Ukraine will see a reduction of Gas imports in 2025. EU Gas Storage levels are lower than last year. US sanctions against the main bank used for Russian Gas payments, may result in disruptions. There is still the possibility that Gas and Oil from the Middle East could be disrupted.
The direction of Wholesale prices is uncertain with a number of events potentially either reducing Gas supplies or increasing demand. We would advise discussing your options for contracts ending in 2024 and early 2025 or at least monitoring the position closely.
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