Utilities Market Knowhow!

As of the 14th January, Gas and Electricity Year Ahead Wholesale costs were lower when compared to last month’s report.

During the last month, Oil fell to $50 a barrel, due to a global oversupply and concern of a slowdown in world economic growth. This was despite OPEC and Russia having announced large Oil production cuts from January, in an attempt to avoid further losses. More recently, discussions between the US and China regarding their trade dispute, may not have shown a breakthrough, but has provided enough optimism to see Oil back at $59.

There has been little change in the Coal price. Although the logistical issues that had reduced Germany’s use have been resolved, China’s slow move away from Coal, countered the impact.

LNG deliveries continued to be an important source of Gas, accounting for 16% in December 2018, from 2% in December 2017. These deliveries are being made to Europe due to the attractive high price when compared to the Asian market. Our Gas storage level is 85% full, which excludes the much larger Rough facility, which has closed. This makes LNG deliveries an important source through the winter to meet higher demand. There have been a number of deliveries so far in January with more planned.

A cheaper Gas price meant a lower Electricity generation cost. Gas made an increased contribution of 41%, whilst Wind fell slightly, but was still significant at 18%. Coal remains a small but important source, despite the intention to close Coal power plants by 2025.

What does this mean for me…..

Wholesale prices have continued a slow steady fall to levels last seen six months ago, but are still much higher than those through 2015 to 2017. There is a premium built into 2019 Gas and Electricity costs, illustrated by lower prices for periods further out. This makes longer term contracts more attractive, something that is not likely to change significantly in the short term.

The Met Office is forecasting a possible cold spell in the next month, which would add pressure to prices.

There is a great deal of 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 Brexit will not impact on our Interconnectors to Europe, providing reassurance. Sentiment is often 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 that 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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