Utilities Market Knowhow!
As of the 7th June, Gas and Electricity Year Ahead Wholesale costs were lower when compared to last month’s report.
There has been a significant fall in the price of Oil from $70 a barrel last month to $63. The main driver has been the lack of confidence in global economic growth, largely the result of the trade dispute between the US and China. OPEC are meeting in June, where they are likely to continue with the current production cuts for a further six months. US pressure has been mounting on OPEC, who want them to replace the lost Oil supplies, from the sanctions against Iran and Venezuela.
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 below 1% in May. A new record was set of eighteen consecutive days without Coal generation in the UK.
Warmer weather and good supplies meant that Gas fell to more than twelve-month lows. LNG deliveries played an important role, helping to meet demand and allowing supplies to be diverted into Storage.
Although the contribution of Wind fell from 16% in April to 11% in May, the availability of cheaper Gas and additional Nuclear capacity, made up the shortfall. This diversity of supply allows a degree of resilience when faced with unexpected events.
The Met Office is forecasting average temperatures with very changeable conditions over the next few weeks, which should see an increase in Wind.
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, 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 long term lows. Our graphs show that historically, June prices are competitive, when there tends to be steady increases through to 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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