Utilities Market Knowhow!

Over the last week, a number of factors have moved the Year Ahead Wholesale price higher for both Gas and Electricity, when compared to last month’s report.

Although the Organisation of the Petroleum Exporting Countries (OPEC) have a cap on Oil production, compliance was just 86% in July, which is the lowest since January. OPEC are meeting to discuss how they can get closer to the cap targets and there have been comments from some nations suggesting further cuts. With US and Chinese demand forecast higher and lower US inventories, the Oil price has gradually increased from $46 to $52 barrel.

The Coal price has increased following global disruption to production and a higher Chinese demand. With Rough, our largest Gas storage facility, being closed, we will not have this available to support higher demand through the winter. This will put greater pressure on supplies and the expectation is that there is likely to be some price reaction the closer we get to the colder weather. We are already seeing volatility in reaction to the moving Oil price, disruptions to imports or delays to scheduled LNG deliveries. However, the increases and generally the subsequent losses are less significant than last winter, but could be a sign of what may happen.

Electricity prices are being heavily influenced by Gas as it accounted for 43% of generation in July. Renewables are an unreliable source of supply, with significant variation in daily contributions. Some days over the last month Wind met an estimated 18% of demand, whilst others barely 2%. During these low Renewable days, we utilise Coal generation, but there is a target to close these by 2025. With the higher cost of delivery, many have already done so, due to lack of profitability.

The National Grid’s Future Energy Scenarios 2017 report, predicts a steady increase for Gas and Electricity Wholesale costs through to 2050 based on three scenarios. Energy demand will depend on the direction we take. A reduction will be due to a focus on environmental sustainability and strategy, whilst maintaining current levels will be a shorter-term use of, for example, Gas generation to replace Coal and Nuclear, to meet consumer’s unchecked demand.

What does this mean for me…

The Year Ahead Wholesale price graphs (see end of report) show a small increase on the previous month. Concern as to how prices will react to possible Gas supply issues, mean it is advisable to put contracts in place for 2017 and early 2018. It has been increasingly noticeable what the impact is on Electricity contracts with higher third-party costs, including, Transportation, Distribution and government policy levies, which look to ensure we have generation available this winter and support Renewables.

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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