Utilities Market Knowhow!
As of the 23rd April, Gas and Electricity Year Ahead Wholesale costs were higher when compared to last month’s report.
There has been good compliance with the OPEC Oil production cuts, which are in place until at least June 19. The US has said it will end the eight country exemptions to the Iran Oil sanctions from 1st May, which has pushed Oil prices higher, from $67 a barrel last month to $74. This is despite record US Oil production and slowing economic growth forecasts for the US, China and Europe. Russia and OPEC may ease cuts to try to gain back market share from the US and meet the additional supply losses from Iran. When Oil goes up, this influences Gas and Electricity prices.
A lower global demand for Coal and higher stocks helped reduce prices further, although with other cheaper sources of generation being available, our use slipped to just 2% of supplies in March.
Gas storage levels are lower due to a cold spell and an unplanned outage to supplies from Norway. The recent warm weather and the deliveries of LNG have improved levels, which should continue over the coming months, providing price relief.
Electricity prices followed Gas higher, due to it being the main source of generation. Wind provided a record 21% of supplies and Imports were up to 11%, with the addition of the new connection to Belgium. This diversity of supply allows a degree of resilience when faced with unexpected events.
What does this mean for me…?
Although Wholesale prices are still high when compared to 2015 - 2017, we are seeing them at around twelve-month lows. 2019 contract start prices are now comparable to 2020, which would indicate some of the premium for 2019 has been removed.
The Met Office is forecasting unsettled weather over the next few weeks, but little indication of a substantial cold spell, removing concern for a spike in Gas and Electricity demand.
There is uncertainty as to which way prices will go in 2019, especially with Brexit and the unknown effect this will have on the £ and the economy. The National Grid have said that a Brexit deal will not impact on our Interconnectors to Europe. There is more uncertainty as to what may happen if there is no deal, which is still a possibility. Sentiment can be a big factor for Wholesale costs.
The influence of higher third-party costs is increasingly noticeable in Electricity contracts. These include Transportation, Distribution and government policy levies. It is estimated, the Wholesale element makes up in the region of 50% 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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