Utilities Market Knowhow!

On the 12th January, there were small increases to the Gas and Electricity Year Ahead Wholesale costs, when compared to last month’s report.

The higher price of Oil has contributed to this, due to the index link between some Oil and Gas contracts. Oil moved from $63 a barrel in December’s report, to $69, which is the highest in almost three years. This considerable increase has been due to a number of factors, but include civil unrest in Iran, lower stock levels in the US and a high level of compliance to the Organisation of the Petroleum Exporting Countries (OPEC) and Russian, production cap. This was extended to the end of 2018. It is anticipated that OPEC may act and adjust the cap to prevent Oil going too high, as this encourages US production and for OPEC to lose market share.

Coal generation has been closing, the intention being to complete this by 2025, as part of our carbon reduction commitment. However, we still currently need Coal when Renewables contributions are low or at times of high Electricity demand. Coal prices recently reached four-year highs with increased demand from Asia and in Europe, due to French Nuclear closures. Increased Coal production and an expected reduction in demand, should see prices fall through 2018.

It was anticipated that Gas consumption would be lower in 2017, but an increased demand in November and December resulted in a 0.7% increase. Although for much of the last month we have had comfortable supplies, this demand and the pressure from the Oil price, resulted in a higher Gas cost.

Electricity prices also increased, following Gas, which is the main source of generation. Sufficient supplies have been available from a diverse range of sources to meet the winter demand. This could be attributed to government policy, but results in higher third-party costs to consumers. 2017 saw some Renewable milestones achieved, including, the first 24-hour period without Coal generation since the 1880s and the highest Wind contribution.

What does this mean for me…

Despite above normal demand and the higher Oil price, we have yet to see the expected volatility for annual contracts. In 2018, an increase in Renewables and potentially lower Coal and Oil prices, may mean that Gas and Electricity follow. However, domestic and global events quickly impact on utility prices. Tensions in Iran, a predicted Gas restriction from Norway due to safety concerns and Rough Gas storage soon to be empty, make current favourable long-term prices attractive.

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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