Key Headlines

Wholesale:

Wholesale power and gas price movements were volatile over the last two weeks, before gas prices settled slightly lower with power prices ultimately moving in the other direction. An increase in carbon prices and the suspension of the Capacity Market have helped lift seasonal power contracts. Conversely, a significant drop in oil prices has had a downward effect, albeit limited, on seasonal gas prices.

Looking ahead:

In the next two weeks, we have a neutral to downwards outlook for wholesale power and gas prices. Comfortable gas and power supplies and lower gas demand than previously expected, owing to milder weather forecasts, will provide downwards pressure to prices. Commodities including oil, coal and LNG also look to remain at their current relatively low levels, while the OECD has cut its 2019 global economic growth forecast amid rising trade and financial risks. This can dampen energy demand and prices.

Third party charges and industry updates:

The last two weeks have been very interesting regarding developments in energy schemes that relate to Third Party Charges (TPCs). The Capacity Market has been suspended following a European Court ruling that the scheme is currently illegal, government has announced the draft budget for the next Contracts for Difference auction for low carbon generation, and several suppliers have failed to pay for their share of the Renewables obligation scheme. Details can be found further down.

Wholesale Power and Gas

Power:

Seasonal baseload power contracts reversed their recent downwards movements, supported by a notable rise in carbon prices. The summer 19 wholesale power price gained 2.0% to £56.7/MWh, whilst the winter 19 contract went up £0.6/MWh to £62.5/MWh. Seasonal power prices also experienced brief gains immediately following the announcement of the Capacity Market’s suspension; however, these gains quickly eased.

Gas: 

In contrast to the power market, seasonal gas prices continued to move lower, although losses have slowed. The summer 19 contract lost just 0.5% to 56.3p/th and winter 19 gas declined 0.6% to 64.7p/th. Brent crude oil prices experienced significant losses amid an oversupplied market, dropping from $69.5/bl to $61.9/bl, with these movements feeding into the gas market.