Utilities Market Knowhow!

There has been downward movement of prices over the last month, with Gas and Electricity Year Ahead Wholesale both showing losses as of 9th September 16, compared to last month’s report. The announcement which contributed to these falls, was Centrica confirming that our largest Gas storage facility (Rough) would now be partially available for withdrawals in November, to provide the additional support to meet demand during the winter.

Following issues, Rough was not expected to be back online until March / April 17. Although Rough will be able to export, it is still unable to import Gas, meaning storage levels are lower than usual at this time of year. Even before this latest announcement, National Grid stated their confidence that we would be able to manage through the winter.

Still no news as to whether Hinkley Point C will be given the go-ahead. It is unclear if the delay is a result of a review of the terms of the contract, a consideration if this is the best solution for our future needs or due to concerns over national security. The French and Chinese investors remain supportive.

Oil is slightly up on last month’s report, but still below $50. OPEC are due to meet in September and there is some confidence that there may be an agreement to put a supply restriction in place to stimulate the cost of Oil. Iran’s compliance will be key in trying to achieve this, as they have so far been unwilling to limit their production. Oil increases could pressure our Gas and Electricity costs.

Coal prices fell after a period of increases, due to the oversupply being higher than thought and a decrease in European demand. Coal now has little impact on us, as it contributes just 3% to generation.

And finally, the impact of the vote to leave the EU. Year Ahead Gas and Electricity prices are back to pre-Brexit levels. There has been mixed economic data, but still various positives, including some small gains to the value of the £ after substantial falls, although the lower £ has made it more competitive to export. How the markets feel about the future is a very important influence on prices. This positive sentiment helps to lower energy costs as the industry is more optimistic about investment.

What does this mean for me…
The Year Ahead Wholesale price graphs (see end of report) show decreases for Gas and Electricity. For contracts which need to be closed or for customers who still wish to close at below 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.

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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