As of the 1st of November, Gas and Electricity Year Ahead Wholesale costs are lower, when compared to last month’s report. The Oil price is higher at $84 per barrel, from $81. As the average price in January 2021 was just $55, OPEC+ may submit to pressure and further increase Oil production.
Gas saw extreme price volatility in October as a number of factors contributed to a sense of nervousness for supplies going into the winter. This was despite a big improvement in our Gas Storage levels, which are now comparable to 2019 and 2020, although Europe’s are just 77% full compared to 95% last year. More recently, statements from Russia suggest they could increase Gas supplies into Europe, easing price pressure. With Gas being the main source of generation, Electricity prices have seen a similar price movement.
The high prices have created issues for some energy suppliers. In the domestic market, a number have ceased trading due to the losses being made by purchasing energy above the government’s Price Cap. For business contracts there have been some underestimates of consumption levels, also exposing them to buy energy well above the contracted rates. This may mean they are forced to review existing arrangements.
The Met Office forecast for the next month suggests temperatures falling below seasonal norm with some night frosts increasing heating demand. Strong Winds and possible gales will reduce the need for Gas generation.
Wholesale prices for 2021 and early 2022 are very high when compared to recent years. Prices for later in 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 are currently much higher, estimated at 57% and 79%.
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 the Distribution charges in some fixed price Electricity contracts from April 2022. It is very likely the Transmission element will be delayed until April 2023.
There is the potential for Wholesale prices to fall to a normal range. However, having experienced six months of increases, a negative announcement from Russia or very cold temperatures in Europe, could see renewed volatility.
We would advise looking at your options for contracts ending 2021. There is an opportunity to contract for two or three years to take advantage of the lower longer-term prices and dilute the impact of the higher short-term costs.
Please contact us on 0333 320 0475 to discuss options or to get a latest update.
On the 1st of November, the Gas Year Ahead Wholesale cost was 120.41p/th, down from 174.39p/th in last month’s report and 236% higher than 2020. Prices from quarter two of 2022 are considerably lower.
Despite the current high cost, we have seen considerable reductions over recent days, as prices start to fall to more realistic levels. The global concern has been the need to buy Gas and improve Storage supplies in readiness for increased winter demands. In the UK our Storage levels are comparable to 2019 and 2020, but in Europe, they are significantly lower than last year. This adds a high degree of nervousness due to the reliance of supplies from Russia, with the expectation that more Gas will be delivered, although when and how much will probably depend on how soon Europe signs off the use of Nord Stream 2. Many LNG deliveries were heading to Asia due to the price premium. As this has lowered, we have started to see more LNG shipments head to the UK, providing additional confidence for supplies this winter.
Temperatures will likely dip below seasonal norm in November, adding heating demand, although the possibility of strong Winds should ease Gas use for Electricity generation.
Let us know if you would like us to research your options for 12, 24 and 36 month contracts.
On the 1st of November, the Electricity Year Ahead Wholesale cost was £121.90/MWh, down from £171.49/MWh in last month’s report and 174% higher than 2020. Prices from quarter two of 2022 are considerably lower.
Electricity prices have followed Gas very closely due to it providing 34% of generation in October. There has been a global surge in demand for Gas supplies as economies pick up and countries fill Storage for winter demand.
There was a significant improvement in Wind’s contribution at 27% of supplies, the highest since February 2020, compared to just 14% in September. The forecast for strong Winds and potential gales in November should continue to ease the reliance on expensive Gas generation.
The impact of the partial outage of one of our Electricity Interconnectors with France was offset by the, North Sea Link with Norway. The 50% outage is expected to be available 2022/23.
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 even more dramatically.
Let us know if you would like us to research your options for 12, 24 and 36 month contracts.
