Energy & Market Update – April

Overview

As of the 7th April, Gas and Electricity Year Ahead Wholesale costs are slightly lower when compared to last month’s report.

With the coronavirus now a global issue, there has been a significant reduction in Oil demand. OPEC and Russia have yet to resolve their differences, which has led to an increase in production. It is anticipated that some agreement will be made to reduce supplies, possibly including the US. The current low cost of $31 a barrel is not sustainable for producers.

Gas Wholesale costs are comparable to 2016, as illustrated by our graph. March saw another month of high LNG deliveries, which are expected to continue into April, due to a low global demand. Use for generation was up to 35% from 28% in February.

Electricity Wholesale prices are also at 2016 levels. As expected, Wind’s contribution was down to 24% from February’s record breaking 29%. Some of this shortfall was made up by additional Solar at 4%. Coal is a more expensive form of generation and provided just 2%. 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 average to above average temperatures for much of the country, but with some overnight frosts. The Renewables contribution is likely to be comparable to March, with sunny spells and periods of windier weather.

What does this mean for me…?

Wholesale prices are extremely competitive, 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.

Although it is advisable to request supplier offers for all 2020 start contracts for your consideration, we are finding that some energy suppliers are focusing on their existing contracts due to resource issues.

Please contact us on 0333 320 0475 to discuss options or to get a latest update. Copyright © 2010 – 2020 Indigo Swan Limited – All Rights Reserved.

Gas Market

On the 7th April, the Gas Year Ahead Wholesale cost was 29.17 (p/th), from 30.89 (p/th) in last month’s report and 39% lower than 2019.

There were more than twenty LNG deliveries in March, with the impact of the coronavirus reducing global demand. With some regions making progress and reducing their lockdown restrictions, we should see a slow recovery of demand and higher prices.

Storage levels are down on 2019, but there will be opportunities to increase these with warmer weather. Although many businesses have closed and reduced Gas demand, this has been replaced by a high domestic use for heating.

The continued low Oil price has impacted on Gas, due to some contractual links. This is due to the coronavirus. It is expected that Oil producing countries will shortly reduce production to stimulate prices, which will feed through to Gas.

Let us know if you would like us to research your options for 12, 24 and 36 month contracts.

Electricity Market

On the 7th April, the Electricity Year Ahead Wholesale cost was 37.49 (£/MWh), from 39.43 (£/MWh) in last month’s report and 30% lower than 2019.

There has been a significant reduction in the national Electricity demand since the coronavirus required the closure of many businesses, whilst Wind and Solar contributed a high 28% to generation. Isolation will likely continue through April, with to date, high Renewable generation at around 30%.

With a lower Gas cost, its use for generation has also helped bring down the Electricity price. It is likely that in April, major Oil producing nations will reduce supplies to increase both Oil and Gas costs. This would then have an impact on Electricity.

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. The Targeted Charging Review will change how some of these are calculated. The first significant date has moved from April 2021 to April 2022.

Let us know if you would like us to research your options for 12, 24 and 36 month contracts.