Utilities Market Knowhow!
As of the 6th July, Gas and Electricity Year Ahead Wholesale costs have increased when compared to last month’s report.
Oil is $77 a barrel from $76 last month. The Organisation of the Petroleum Exporting Countries (OPEC) meeting on the 22nd June saw agreement to increase Oil production, which was followed by Russia. It is understood this may add an additional one million barrels a day. Unfortunately, there have also been disruptions at similar levels, adding pressure to prices. The US decision to withdraw from the Joint Comprehensive Plan of Action (JCPOA) is also likely to restrict Oil exports from Iran.
Coal demand from Asia continues to push prices to a near five year high. This is an expensive form of generation, contributing just 1% in June. Future demand forecasts make it unlikely there will be any short-term reductions.
LNG deliveries and the closure of the Interconnector, which we use to export Gas to the continent, did allow the opportunity to increase our depleted Storage levels. These will need to be filled before the start of the Winter season, to avoid considerable volatility during cold spells. Since the re-opening of the Interconnector, Gas exports have resumed and costs increased, due to an undersupplied system and the need to use Storage. Another pressure, is the high Oil price and the contractual links between it and Gas.
46% of generation came from Gas in June, the highest level since April 2017. 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 9% in June from 12% last year, with little change so far in July.
What does this mean for me…
We still wait for the perfect weather conditions to make use of Wind and Solar, which should substantially reduce the reliance on Gas for generation, lowering costs. This position is not likely to change in the short term.
Longer term, improved Renewables and pressure being applied to Oil producing nations to increase production, may allow for some easing of prices. However, the potential impact on Oil production due to sanctions against Iran and pressure from global trade barriers could undermine this.
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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