Headlines:
- Gas and Electricity Wholesale prices are lower than last month
- A more positive outlook this winter compared to last
- EU Gas Storage levels are a very high 67% full
Energy Overview
As of the 13th of February, Gas and Electricity Year Ahead Wholesale costs were lower than those in last month’s report.
Prices have continued to fall and are now at their lowest level in almost three years, although they are still higher than what had been regarded as normal in 2020 and early 2021, prior to tensions with Russia.
The EU’s Gas Storage levels have fallen to 67% full, from 84% in last month’s report, which is comparable to last year, but far higher than 2021 and 2022 when there were fears that shortages could result in supply restrictions to customers. Europe has already experienced a cold spell, with a more promising outlook over the coming weeks.
Energy markets will have already built into prices, the delays to LNG shipments, due to the longer route being taken to avoid the Red Sea and the threat to shipping. There is the potential that further developments in the region could result in price volatility.
Some UK Nuclear generation went offline in January for unplanned maintenance, which increased our reliance on Gas, contributing a high 38% of Electricity over the month and 60% on the 11th January. The position has since improved.
What does this mean for me?
The Energy Bills Discount Scheme (EBDS) replaced the Energy Bill Relief Scheme (EBRS) on the 1st of April 2023. It is designed to give all non-domestic customers, including the voluntary sector (such as charities) and the public sector (such as schools and hospitals) access to a phased in maximum discount when the customer’s wholesale cost exceeds the defined thresholds. This scheme lasts for 12 months until 31st of March 2024 and applies to contracts that were put in place on or after 1st of December 2021 and non-contracted arrangements. As with the EBRS, energy suppliers will automatically apply these standard discounts. The levels of assistance are less generous, but the price of Gas and Electricity is considerably lower than 2022. Those companies that are classed as Energy and Trade Intensive Industries (ETII) and Heat Networks, need to apply to receive a more attractive discount.
Since April 2023, customers may have seen higher Standing Charges on their Electricity invoices. There have been changes to the way some industry charges are calculated, under the Targeted Charging Review. This move is part of an attempt to recover more Electricity costs, such as Transmission and Balancing, through fixed fees. In theory this should give both the customer and the industry a more accurate way of managing finances. More changes are due.
Indigo Swan are working 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 13th of February, the Gas Year Ahead Wholesale cost was 69.00p/th, down from 83.34p/th in last month’s report and 57% less than 2023.
LNG deliveries continue to arrive despite the conflict in the Middle East causing delays to shipments as they avoid the shorter route through the Red Sea and Suez Canal, due to threats from rebels. EU Gas Storage levels are 67% full, which is a positive position, and assuming there are no further issues, then they should be refilled during the warmer months to the 90% target, in readiness for winter 2024/25.
We had a period of low temperatures in January which contributed to a reduction in the UK’s Gas Storage, but this also remains high. The status of Storage is a key price driver for both Gas and Electricity Wholesale costs and with mild temperatures forecast, this should reduce the need for heating.
Although prices for the next twelve months are lower, there is a premium for longer term contracts, but this is very small in comparison to recent years. There is still the possibility that the conflict in the Middle East could create supply issues and the US announced they would review their LNG export policy for new projects, to take into consideration domestic energy costs and carbon emissions. With the US being the biggest LNG exporter, longer term this may apply pressure to existing supplies as the global demand for LNG grows.
We would advise discussing your options for contracts ending in 2024 or at least monitoring the position closely.
Electricity market overview
On the 13th of February, the Electricity Year Ahead Wholesale cost was £64.39/MWh, down from £79.90/MWh in last month’s report and 61% less than 2023.
Unplanned Nuclear outages added pressure to other forms of generation in January, with Gas providing a high 38%, compared to just 30% last year. We are looking to close the last Coal power station by October 2024, but continue to use it to help balance the network, at almost 2% of supplies in January. Over the last week a low Wind contribution at 25% has continued our reliance on Gas.
Interconnectors with Europe, that allow power to be both imported from and exported to Norway, France, Belgium and Denmark, provided 15% of our Electricity last week. This cannot always be relied on as historically there have been issues, with the closure of French Nuclear reactors and low Hydro supplies from Norway. This underlines the importance of a diverse range of supplies and schemes. One of the tools utilised over the winter has been the Demand Flexibility Service, which helps reduce stress on the network by incentivising using less Electricity.
With such a high reliance on Gas to produce Electricity, the supply and Storage positions both here and the EU are closely monitored, especially for the winter, meaning the conflict in the Middle East could yet have an impact.
We would advise discussing your options for contracts ending in 2024 or at least monitoring the position closely.
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