Utilities Market Knowhow!

As of the 9th March, Gas and Electricity Year Ahead Wholesale costs have increased, when compared to last month’s report.

Oil is up from $62 to $65, although we have seen $70 this year. The Organisation of the Petroleum Exporting Countries (OPEC) and Russian production cap, has been extended until the end of 2018. It is expected that US Oil production will continue to increase, due to the attractive inflated prices. These additional supplies will give the US market share growth, as they meet increased demand. This leaves OPEC and Russia to consider relaxing compliance to the cap and risking the return of the $40-$50 price range.

Coal has seen a 10% drop from four-year highs, due to increased output and reduced Asian demand. Additional use for Electricity generation across Europe, did add some pressure to Coal prices.

The cold spell also increased Gas demand to a five-year high. This coincided with a number of supply outages. Storage levels both here and Europe have been depleted to levels last seen in 2013. Prices are volatile, with another cold spell on the way and tensions between Russia and Ukraine, potentially impacting on piped Gas supplies into Europe.

41% of generation came from Gas in February, so Electricity prices also increased. Coal generation was needed to meet the higher demand, which is a more expensive source of supply. As an illustration, we still needed Coal to provide 11% of generation in February, although this figure is lower than the 14% in 2017 and 20% in 2016. Coal’s contribution is diminishing, in line with the plan to end its use by 2025, but for now remains crucial. Reduced Wind and the maintenance of Nuclear facilities all added pressure to prices.

What does this mean for me…

Looking at price movements in a little more detail, both Gas and Electricity had coped well under demand pressure. However, the depleted Gas Storage levels here and across Europe, mean there is a greater supply concern for the coming cold spell. Wholesale costs have increased 5-6% over the last week in anticipation of issues. As temperatures increase, demand will be lower, more Renewables will be available and LNG shipments potentially resume, which should result in lower prices.

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.

Our DCP 228 and 161 Guides outline changes to Distribution charges from April 2018. This will include an excess charge on your Available Capacity, for units used over your entitlement.

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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