Utilities Market Knowhow!

As of the 10th October, Gas and Electricity Year Ahead Wholesale costs are lower when compared to last month’s report. 

Oil is $83 a barrel from $76 last month, although it did reach $86 during the period which was a four year high. The main concern are the sanctions against Iran, which are anticipated to reduce global Oil supplies, with little sign that other producers will make up the shortfall. The US / China trade dispute is easing pressure on prices, reducing economic growth forecasts and demand. 

Coal demand from Asia and Europe pushed prices above $100 tonne, a new five year high. Although Coal is an expensive form of generation, it contributed 6% in September. This increase on last month’s 1% is due to the greater financial reward from a high Electricity wholesale cost and has replaced some Gas, which is itself an expensive source of generation. 

Gas storage levels are virtually unchanged at 69% full, but now excludes the much larger Rough facility, which has effectively closed. This reduced capacity makes us vulnerable to prolonged cold spells, as experienced earlier this year, when storage became depleted and prices increased. The diversion of LNG shipments to Asia, the need to fill storage and Exports to the continent, have all added pressure to prices. 

Electricity prices reflected a lower Gas cost although its contribution was the lowest in over two years. Wind accounted for a very high 18% of supplies in September, providing a cheap source of Electricity. Wind should remain high over the coming months with changing weather conditions and more turbines coming online. 

What does this mean for me…

There is still a premium built into 2018 / 19 Gas and Electricity costs, illustrated by lower prices for periods further out. This makes longer term contracts more attractive, which is not likely to change significantly in the short term. 

There is a great deal of uncertainty as to which way prices will go in 2019, especially with Brexit discussions entering a crucial phase and the unknown effect this will have on the £. Sentiment is often a big factor for Wholesale costs as it is with shares.  

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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