As of the 19th August, Gas and Electricity Year Ahead Wholesale costs were slightly lower when compared to last month’s report.
Oil is down from $64 to $59 a barrel, although had reached $67. A lack of forecast economic growth counters OPEC and Russian attempts to maintain a high Oil price, by extending their production cuts through to March 2020. The trade dispute between the US and China shows little sign of ending.
Coal prices continue to be low due to reduced demand. This may mean that some producers cut production in order to stabilise and stimulate prices, in the same way that OPEC attempts with Oil. Our use for generation has been less than 1% over the last three months.
Warmer weather has reduced Gas heating demand and although we have seen fewer LNG deliveries, Storage levels have increased to 86% full, from 61%. Looking ahead we expect LNG to continue to be an important source, due to increases in production levels.
Wind’s contribution to Electricity generation fell to just 13% in July, the shortfall being made up by Gas and Nuclear. Over the last week this has picked up to 25%.
The Met Office is forecasting unsettled windy conditions in the north and the possibility of above average temperatures. This will likely reduce the need for Gas generation, easing pressure on both Gas and Electricity Wholesale costs.
There is uncertainty as to which way prices will go due to domestic and global political instability and the effect this will have on the £ and the economy. The National Grid have said that a Brexit deal will not impact on our Interconnectors to Europe. There is more uncertainty as to what may happen if there is no deal by the 31st October, which is still a possibility. Sentiment can be a big factor for Wholesale costs.
Wholesale prices are going through a period of relative stability, after steady losses from September 2018. These are still high when compared to 2015 – 2017 but do represent value. Our graphs show that historically prices start to tick up during the Summer into the Winter. This could be a good opportunity to secure all 2019 and early 2020 contracts.
The influence of higher third-party costs is increasingly noticeable in Electricity contracts. These include, Transportation, Distribution and government policy levies. It is estimated, the Wholesale element makes up in the region of 45% of the Electricity bill and that is excluding the supplier margin, metering and VAT.
On the 19th August, the Gas Year Ahead Wholesale cost was 44.20 (p/th), from 45.44 (p/th) in last month’s report and 27% lower than 2018. The last time we saw better value was in August 2017.
July saw another fall in LNG deliveries, which has continued into August. The UK Gas price is still attractive to LNG shippers when compared to the Asian market, but there may be instances where they await a better price before committing to deliver.
The warmer weather did mean that there was a reduction in heating demand, although Gas did have to replace the lower Wind generation. Storage levels are 86% full, which is a positive position towards the end of the summer, in readiness for colder spells. Some contractual links between Oil and Gas add price pressure.
On the 19th August, the Electricity Year Ahead Wholesale cost was 50.05 (£/MWh), from 51.40 (£/MWh) in last month’s report and 15% lower than 2018.
Wind’s contribution fell in July to just 13% of generation, from a 21% high in May. More recently we have seen days at over 30% and the possibility of a better monthly performance due to unsettled weather over the next couple of weeks.
Nuclear accounted for 19% from 17%, but is still below the 20% plus we saw in April and May. This did support Gas which contributed 49%, its highest in a year. Coal generation will end by 2025 to help meet carbon reduction targets, providing less than 1%, although Coal is still likely to be an important source of supply in the Winter as demand increases.
Third Party Charges continue to increase regardless of how the Wholesale element changes, which has been very evident as we look to secure contracts for customers. These charges typically pay for the mechanisms, securing generation at peak periods.
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