Headlines:
- Below seasonal norm temperatures are forecast
- LNG shipments are heading back to Europe
- Gas Storage levels are low
Energy Overview
As of the 3rd of March, Gas and Electricity Year Ahead Wholesale costs are lower, when compared to last month’s report.
The price of Oil did reach a high of $67 a barrel, levels not seen since January 2020, but has since fallen back to $64, from $57 last month. The increase is due to a combination of production cuts by OPEC+, a more optimistic economic outlook and supply disruptions caused by low temperatures in the US.
The cold start to February in the UK meant an increased demand and a heavy use of Gas Storage, resulting in rising Gas prices. As Gas makes the largest contribution to generation, there was a similar increase during this period to Electricity costs. The warmer spell later in February saw demand and prices ease.
With the dramatic fall of the LNG price in Asia, more deliveries are being made to the UK. This should provide an opportunity to inject surplus Gas into Storage, but another cold spell and supply outages have so far not made this possible.
The Met Office forecast for the next month suggests temperatures will be at or below the seasonal average with little indication of a good Wind contribution, which may add pressure to prices.
What does this mean for me?
Wholesale prices for 2021 are high when compared to 2020 but are comparable to 2019. Prices for 2022 and 2023 show better value. It should be remembered that the Wholesale element makes up in the region of just 40% of the total cost of an Electricity bill and roughly 60% for Gas.
Increasing third-party costs are noticeable in Electricity contracts. These include, Transportation, Distribution, and government policy levies, which ensure we have enough energy to meet demand and provide investment.
Over the next year or two, the way some of these charges are calculated will change, under the Targeted Charging Review. Energy suppliers will be looking at their Electricity contracts and deciding whether to fix costs, pass them through or leave enough scope for them to decide, as they feel able. This does allow for the possibility of a review of some fixed price Electricity contracts from April 2022.
If temperatures remain low over the next month, we will likely see the continued need for high volumes of Gas to provide heating and potentially to support generation, due to a lower Wind forecast. These factors would indicate an upward pressure on Gas and Electricity Wholesale prices.
With better value in longer term contracts, we would advise looking at your options for contracts ending 2021.
Please contact us on 0333 320 0475 to discuss options or to get a latest update.
Gas Market Overview
On the 3rd of March, the Gas Year Ahead Wholesale cost was 43.25 (p/th), from 46.05 (p/th) in last month’s report and 40% higher than 2020.
The cold spell in February saw a high demand for heating and generation. Although the contribution towards Electricity demand was down to 35% from 43% in January, there was a daily high of 54%.
Gas supply outages have meant that despite the increase of LNG deliveries, that were recently heading to Asia, we have used large amounts of Gas Storage. As demand lowers and supplies come back online, there will be a need to replace the used Storage, in readiness for next winter.
As a result of these pressures, the price of Gas reached almost 50 (p/th) for a year ahead contract.
Temperatures are due to be at or below the seasonal average for most of March with little indication of strong Winds. These factors would suggest little opportunity for significant reductions in Wholesale prices.
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 March, the Electricity Year Ahead Wholesale cost was 54.13 (£/MWh), from 54.54 (£/MWh) in last month’s report and 37% higher than 2020.
February had a lower Electricity demand than 2020, despite a cold spell, which saw the price peak at 58 (£/MWh). This was due to an increase in Gas prices, which provided 35% of generation. There was a higher combined contribution from Wind and Solar, at 28% compared to 20% in January.
The start of March has seen a heavy reliance on Gas generation, providing 55%, whilst Wind just 3%. The forecast at this time suggests, that although this will improve, we should likely expect a continued high Gas contribution, which reduces the likelihood of a significant reduction in Wholesale prices.
The industry remains confident that it can cope with demands, despite the erratic nature of Renewables. Although Coal generation is due to go offline by 2024/25, we are still reliant on it during colder spells.
The National Grid has mechanisms in place, to secure additional supplies or reduce demand. These do come at a cost, in the form of higher third-party charges within Electricity bills but provide an element of stability to prices which otherwise may react far more dramatically.
Let us know if you would like us to research your options for 12, 24 and 36 month contracts.
