Utilities Market Knowhow!

As of the 11th May, Gas and Electricity Year Ahead Wholesale costs had increased significantly when compared to last month’s report. 

We have seen a considerable increase in the price of Oil. Last month we reported $67 barrel, but is now $77. A number of factors are responsible for this, including, an increase in demand from Asia and the reduction in production from the Organisation of the Petroleum Exporting Countries (OPEC). However, the US decision to withdraw from the Joint Comprehensive Plan of Action (JCPOA) has added a degree of nervousness. There is the potential to restrict Oil exports from Iran and impact on wider industry investment, due to fears of US actions against companies that do not comply with the sanctions. This move has also increased tensions in the Middle East, further threatening supplies. More positive news has been the continued increase of US production. 

Disruption to supplies from Australia and a high demand from India and South Korea, have pushed up Coal prices, making this an expensive form of generation, contributing just 2% in April, from 14% in March.

Due to contractual links, Gas prices have followed Oil higher. Storage levels are still low after the recent cold spells and disruptions to supplies. Warmer weather, the resumption of LNG deliveries and less demand for generation due to Renewable contributions, will hopefully ease prices over the next month. 

As 45% of generation came from Gas in April, Electricity prices are also up. However, despite the modest Renewables in April, the National Grid have commented, that this summer, we may have surplus supplies of Electricity, due to periods of excessive Wind and Solar. 

What does this mean for me….. 

Warmer weather and more Renewables, should see a reduction in expensive Gas generation, lowering costs. Oil would appear to have already built in supply and demand concerns, the hope being the price will ease, also reducing some pressure on Gas, through contract links. 

There is little evidence of considerable reductions in the short term, so these contracts should be reviewed now. For those further out in 2018, we would advise monitoring closely. 

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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