Utilities Market Knowhow!

As of the 13th March, Gas and Electricity Year Ahead Wholesale costs were lower 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. These along with US sanctions against Iran and Venezuela, have helped push Oil prices higher from $61 a barrel last month to $67, despite record US Oil production and slowing economic growth forecasts for China and Europe. 

A lower demand for Coal and higher stocks helped reduce prices further, although with other cheaper sources of generation being available, our use slipped to just 3% of supplies. 

Milder weather reduced the demand for Gas, certainly when compared to last year, when the Beast from the East stretched resources. Gas storage levels are at 53% full, from 58% last month, but were just 21% last year. A considerable improvement. Temperatures are due to be around the seasonal normal, with unsettled windy conditions, meaning Renewables may continue to relieve some of the generation burden from Gas. 

A mix of generation sources meant Electricity prices fell. Cheaper Gas, a good supply of Wind, increased Nuclear and Imports, were all factors, as well as less demand for expensive Coal. A number of Nuclear assets are currently offline, which could further ease prices as they return. 

What does this mean for me…? 

Wholesale prices have continued a steady fall towards 2017 levels. 

Much of the premium that was built into 2019 prices has now been eroded, with similar 12, 24 and 36-month, Wholesale costs. This would indicate better value for contracts for all three periods. 

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 at this time 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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