Utilities Market Knowhow

The last month has seen volatility for Gas and Electricity Year Ahead Wholesale prices, although as of the 5 th August, they are lower than last month’s report. Since the last report’s rising prices, they initially settled as confidence grew with positive signals coming from government after the EU Referendum result. The lower £ increased import costs, but the supply / demand relationship remained reasonably healthy.

Oil was showing a degree of stability after a number of months of increases, which had been pushing up Gas and Electricity prices. It was then announced that our largest Gas storage facility (Rough) which is expected to be available through winters to support higher demand, would be offline, potentially until March / April 17. There was an immediate negative reaction to this news and prices moved higher. Since then, Oil prices have slipped to around $45, from the last report’s $50. This is a result of Canadian and Nigerian supplies coming back online, a less confident outlook for global economic growth and high inventory levels. There are also indications that the Gas and Oil industries are driving down production costs to be able to survive lower revenues.

Coal has generally been on the increase as production slows, although there has been a recent downturn. Only 4% of our generation came from Coal in July, so this has minimal impact.

EDF finally gave the go-ahead for Hinkley Point C and with the expectation that the contract would be signed, the Government stated they would like to delay for a few months. The enormous scale and cost of the project would be met by consumers in the form of higher Electricity costs. Our generation mix has changed significantly during the ten years of planning and we have also seen a decrease in national demand. This may mean the project is cancelled or renegotiated. Gas generation is cheaper and quicker to bring online, with an increased diversity of sources, removing some of the fears over security of supply.

What does this mean for me?

The Year Ahead Wholesale price graphs show decreases for Gas and Electricity. For contracts which need to be closed or for customers who still wish to close at 2015 levels, there is good value in doing so now. Additional environmental levies and costs for measures to ensure generation is available, has meant that Electricity prices are on the rise, beyond the Wholesale %. Although the short term supply outlook appears healthy, there is a great deal of uncertainty as to which direction prices will go, so for the more risk averse, all 2016 and 2017 contracts should be considered.

Should you require further information, contact your lpm Estates Manager now.

Life Property Management work closely with utilities broker Indigo Swan, to bring the best energy rates to their clients. Indigo Swan’s Market Knowhow is a regular, comprehensive report on the position of the Utilities Market.

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