Utilities Market Knowhow!

As of the 15th August, Gas and Electricity Year Ahead Wholesale costs have increased when compared to last month’s report.

Oil is $70 a barrel from $77 last month. The Organisation of the Petroleum Exporting Countries (OPEC) and the US, have increased Oil production, reducing some pressure on supplies. Significant disruptions within Libya have been resolved and the US / China trade dispute is a concern for global economic growth and future Oil demand. The US sanctions against Iran, which threaten to impact on Oil exports, are supporting prices.

Coal demand from Asia continues to push prices higher. This is an expensive form of generation, contributing just 1% in July. Future demand forecasts make it unlikely there will be any short-term reductions.

Gas storage levels are 75% full, having recovered from the lows earlier in the year, following the cold spells. Storage now excludes the much larger Rough storage facility, which has effectively closed. Gas has been a significant contributor to generation, at 49% in July, with the average over the last year at 46%. The increase in demand, supply outages, Exports to the continent and Gas being diverted into storage, have all added pressure to supplies.

As so much generation came from Gas in July, this influenced Electricity prices in the form of higher generation costs and contradicted a National Grid report. This gave hope, that this summer, we may have surplus supplies of Electricity, due to periods of excessive Wind and Solar. Wind contributed just 7% in July, compared to a 13% average over the last year, despite the additional turbines.

What does this mean for me…

We still wait for the perfect weather conditions to benefit from Wind and Solar, which should substantially reduce the reliance on Gas for generation, lowering costs. This position is not likely to change significantly in the short term.

Oil producing nations have increased production, lowering the Oil price. Without sanctions by the US on Iran, we may have seen further reductions. There is still a large premium built into 2018 Gas and Electricity costs, illustrated by lower prices for periods further out. This makes longer term contracts more attractive.

The impact of higher third-party costs is increasingly noticeable in Electricity contracts. These include, Transportation, Distribution and government policy levies. 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.