Utilities Market Knowhow!

As of the 10th May, Gas and Electricity Year Ahead Wholesale costs were slightly lower when compared to last month’s report.

Oil is down from $74 to $70 a barrel, which influences our Gas price, due to contractual links. US production is at a record high, whilst OPEC, a four-year low. This is an attempt by OPEC to inflate prices. They meet in June to discuss future policy and potentially increase supplies to replace those lost through the Oil sanctions against Venezuela and Iran. Trade talks between the US and China are faltering, giving a more negative outlook for economic growth.

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 1% in April.

The outage of an Interconnector which allows us to export Gas to the continent and the warmer weather meant that Storage levels increased to 61% full, from 45% last month and just 34% this time last year. LNG deliveries have stabilised prices, despite the recent below seasonal average temperatures.

Although the contribution of Wind fell from 21% in March to 16% in April, 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 colder weather in the short term with the potential for milder unsettled conditions later in the month. This will likely mean Wind’s contribution will be lower than recent highs.

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 around twelve-month lows. Our graphs show that historically, May generally offers competitive prices, so this could be a good opportunity to secure 2019 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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