Headlines:
- Very low Gas Storage levels.
- More Gas generation required due to low Wind.
- Unplanned Gas supply outages and uncertainty regarding LNG deliveries.
Energy Overview
As of the 4th of May, Gas and Electricity Year Ahead Wholesale costs are higher, when compared to last month’s report.
Although Oil has increased from $62 a barrel to $68, it has been relatively stable over the last two weeks. Some positive economic data from China and the US is being countered by increasing coronavirus cases in India and other regions, dampening Oil demand forecasts. OPEC+ decided to continue with the planned production increases.
Gas prices have reacted to a number of pressures. Above seasonal norm Gas demand from increased use of heating, due to the lower temperatures, has been the main driver. Increasing Gas volumes have been needed to support Electricity generation, as there have been low levels of Wind. Unplanned Gas supply outages and uncertainty over LNG deliveries have also contributed to rising prices. The result is that Storage levels are extremely low at a time when we should have started to increase supplies in readiness for this coming winter.
With Gas providing a very high 46% of generation in April, Electricity prices have followed. An increase in the monthly demand, high Carbon prices and the use of Coal, also contributed.
The Met Office forecast for the next month suggests an improved Wind contribution in May, with temperatures potentially returning to seasonal norms in the south at times.
What does this mean for me?
Wholesale prices for 2021 are very high when compared to recent years, only comparable to short periods of 2018. Prices for 2022 and 2023 show much better value. Generally, the Wholesale element makes up in the region of just 40% of the total cost of an Electricity bill and 60% for Gas, but these percentages will be higher for 2021 prices.
Increasing third-party costs are noticeable in Electricity contracts. These include, Transmission, 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 can choose whether to fix Electricity contract costs, pass them through or leave that decision until a later date. This does allow for the possibility of a review of some fixed price Electricity contracts from April 2022. We await the decision if the Transmission element will be delayed until April 2023.
The weather outlook is indicating some relief to the pressures on Gas and Electricity supplies. The lack of certainty regarding LNG deliveries, Gas supply outages and importantly the very low Storage levels and the need to increase them, will likely continue to add price pressure.
We would advise looking at your options for contracts ending 2021 and potentially incorporate lower future prices.
Please contact us on 0333 320 0475 to discuss options or to get a latest update.
Gas Market Overview
On the 4th of May, the Gas Year Ahead Wholesale cost was 60.61 (p/th), from 52.47 (p/th) in last month’s report and 126% higher than 2020. The prices for 2022 and 2023 are considerably lower.
Gas supplies have been required to meet the heating demand from another cold spell and to support Electricity generation, which increased from 40% in March to 46% in April.
Storage levels are now extremely low, about 20% of those in 2020. The injection season should have started, where we divert Gas into Storage for the winter. The fact that levels are so low and continue to be utilised, is causing a substantial price pressure. It is likely, until this changes, we will continue to experience volatility for Gas and Electricity Wholesale costs.
The concern is where supplies will come from and at what price. LNG has a global demand which creates uncertainty regarding deliveries to the UK and there have been a number of unplanned Gas supply outages.
Let us know if you would like us to research your options for 12, 24 and 36 month contracts.
Electricity Market Overview
On the 4th of May, the Electricity Year Ahead Wholesale cost was 70.16 (£/MWh), from 62.23 (£/MWh) in last month’s report and 93% higher than 2020. The prices for 2022 and 2023 are considerably lower. There are a number of factors which are contributing to this.
Gas generation accounted for a very high 46% in April, from 40% in March. As Gas costs are volatile, this was a significant reason for the higher Electricity price. Until Gas Storage levels are replenished, this is not likely to change.
Wind generation was a very low 13%, with a number of days between 1% and 5%. The erratic nature of Renewables often means we have too much or too little available. Without the ability for large scale Electricity Storage, this means we remain heavily reliant on Gas and what remains of our Coal generators.
On the 13th of April, Coal provided almost 4% of generation, which may be seen as a concern due to its planned closure by 2024. 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.
