Utilities Market Knowhow!

As of the 19th August, Gas and Electricity Year Ahead Wholesale costs were slightly lower when compared to last month’s report.

Oil is down from $64 to $59 a barrel, although had reached $67. A lack of forecast economic growth counters OPEC and Russian attempts to maintain a high Oil price, by extending their production cuts through to March 2020. The trade dispute between the US and China shows little sign of ending.

Coal prices continue to be low due to reduced demand. This may mean that some producers cut production in order to stabilise and stimulate prices, in the same way that OPEC attempts with Oil. Our use for generation has been less than 1% over the last three months.

Warmer weather has reduced Gas heating demand and although we have seen fewer LNG deliveries, Storage levels have increased to 86% full, from 61%. Looking ahead we expect LNG to continue to be an important source, due to increases in production levels.

Wind’s contribution to Electricity generation fell to just 13% in July, the shortfall being made up by Gas and Nuclear. Over the last week this has picked up to 25%.

The Met Office is forecasting unsettled windy conditions in the north and the possibility of above average temperatures. This will likely reduce the need for Gas generation, easing pressure on both Gas and Electricity Wholesale costs.

There is uncertainty as to which way prices will go due to domestic and global political instability and the 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 by the 31st October, which is still a possibility. Sentiment can be a big factor for Wholesale costs.

What does this mean for me…?

Wholesale prices are going through a period of relative stability, after steady losses from September 2018. These are still high when compared to 2015 – 2017 but do represent value. Our graphs show that historically prices start to tick up during the Summer into the Winter. This could be a good opportunity to secure all 2019 and early 2020 contracts.

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 45% 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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