Utilities Market Knowhow!

Through September and into October, there have been increases to both the Gas and Electricity Year Ahead Wholesale prices, due to a number of influences.

In September, OPEC announced that they are likely to at least freeze Oil output. More details will become clear in November, but for now, Iran continues to increase their output and stocks are at near record highs.

The impact of this news has been to push the Oil price above $50. The higher Oil price pressured Gas to follow, despite healthy global Gas supplies and the domestic news that two thirds of Rough (our largest storage facility) will be available for withdrawals from 1st November. This is below normal capacity for the time of year.

October’s temperatures are expected to be slightly lower than normal, which will add pressure from domestic heating demand. As 47% of our generation came from Gas in September, Electricity followed Gas with large increases, focusing on winter 16 prices.

There was already pressure due to safety concerns in France for its Nuclear supplies. This impacts on our ability to import, possibly through 2017.

The loss of Coal generation and the forecast tight supply / demand relationship expected this winter, already means there is a nervousness within the industry, reflected in prices. Any negative news will contribute to increases. We saw this in September, with huge upward movements to Day Ahead costs, meaning those consumers using this method of flexible procurement, are potentially very exposed.

On the plus side, the Hinkley Point C contract has been signed, giving some reassurance regarding our longer term generation.

There were increases to Coal prices, which are now back to January 15 levels. Previous low costs forced production cuts, so we would expect as prices increase, production will follow to stabilise the market.

It was announced that we are likely to formally request our exit from the EU early 2017, which focused speculation as to the type of relationship we will have with them. This caused a further decreases to the £, which makes imports more expensive, adding another price pressure to our energy costs.

What does this mean for me…

The Year Ahead Wholesale price graphs show increases for Gas and Electricity. For contracts which need to be closed this winter, it is worth considering contracting now, due to the volatility mentioned in this report. 

There is a great deal of uncertainty as to which direction prices will go, so for the more risk averse, 2017 contracts should also 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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