Utilities Market Knowhow!

As of the 13th November, Gas and Electricity Year Ahead Wholesale costs show considerable decreases when compared to last month’s report.

In recent weeks, Oil has held between $61-$62 a barrel. Although we have seen lower prices, for the same period last year the cost averaged $75. OPEC and Russia look to maintain a high price with production cuts through to March 2020 and speculation these may be extended further. However, trade disputes between the US, China and the EU, continue to suppress world economic growth and the price of Oil.

The cost of Wholesale Gas is at its lowest level since 2016, despite entering the colder months and below seasonal norm temperatures. There were sixteen LNG deliveries in October, up from ten in September. These supplies have allowed us to divert Gas into storage. Recent deliveries indicate that November will also see a significant LNG contribution.

Electricity Wholesale prices are at levels last seen in 2017 and early 2018, with supply confidence for the winter. As Gas prices are lower and regularly provide 40% of our generation, this directly impacts on Electricity. Wind has made a significant contribution for a number of months, replacing more expensive sources. Although Coal supplies a decreasing proportion of our Electricity, it remains an important contributor when demand is high and less reliable renewables are low. Coal generation is due to end by 2025 as part of our target to reduce carbon emissions, although plants continue to close early, due to not being profitable.

The Met Office forecast for the next month, is for cold spells, overnight frosts and some strong winds. This will mean, a higher Gas heating demand and may stall further reductions in Wholesale costs.

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 we exit without a deal. The outcome of the general election on the 12th December will likely determine the future of the Brexit process.

What does this mean for me? .....

Wholesale prices are extremely competitive. As we head into the colder months, it is advisable to request supplier offers for any remaining 2019 and all 2020 contracts, for your consideration. Longer term contracts also look attractive and provide budget certainty. With colder weather, higher demand and a tighter supply / demand relationship, there is a greater risk of price volatility.

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, please 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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