Utilities Market Knowhow!

On the 8th December, there were small decreases to the Gas and Electricity Year Ahead Wholesale costs, when compared to last month’s report.

Oil is holding at $63 a barrel despite the confirmation that the Organisation of the Petroleum Exporting Countries (OPEC), are extending their production cap for another nine months, until the end of 2018, which was followed by the same commitment from Russia. This news had been anticipated and factored into prices, so there was no impact. The US is increasing production and we would expect this to continue with the stable higher price.

There has been an anticipation of higher prices through the winter as demand increases, due to Gas and Electricity supply issues. We have seen peaks over the last month, however, they have been followed with the realisation that conditions remain relatively comfortable and resilient.

Gas demand is expected to be lower this winter. Our largest Gas storage facility is emptying before its closure, which is providing some additional supplies. With deliveries from the continent and LNG shipments, we have so far had little need for concern.

The ongoing issue of French Nuclear shutdowns, with the resulting reduced Imports to us and the need to Export to them, has most likely added some additional cost to Electricity prices. We had our own Nuclear downtime and reduced Wind contributions in November. Measures are in place to utilise more expensive Coal generation through the Capacity Market (CM) to compensate for these shortfalls. Although these measures protect us from shortages and a more volatile Wholesale market, we do pay for these in the form of additional costs, which suppliers have to include within Electricity contracts.

The £ has gained some strength over the last month with more positive news on Brexit negotiations. Its value effects our Import costs.

What does this mean for me…

The Year Ahead Wholesale price graphs (see end of report) show a small decrease, despite the current cold spell, which may be a positive sign that prices already contain the negative sentiment of potential supply issues. However, these are still early days, so should there be additional concerns, these could easily translate into price volatility.

It has been increasingly noticeable what impact higher third-party costs are having on Electricity contracts. These include, Transportation, Distribution and government policy levies. See our DCP 228 and 161 Guides for changes to Distribution charges from April 2018. It is estimated that the Wholesale element makes up just 42% of the Electricity bill and that is excluding the supplier margin, metering and VAT.

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

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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Deacon is a trading name of Arthur J. Gallagher Insurance Brokers Limited which is authorised and regulated by the Financial Conduct Authority. Registered Office: Spectrum Building 7th Floor, 55 Blysthwood Street, Glasgow, G2 7AT.Registered in Scotland. Company Number: SC108909.