Key Headlines

Wholesale:

Last week a number of major developments in Europe caused seasonal power and gas contracts to rise sharply, with prices seeing the biggest day-on-day change since the Beast from the East in March 2018.

Commodity price movements were more mixed with coal prices climbing, whilst oil prices and carbon emission costs fell. However, oil prices surged on Monday 16 September following a drone attack on Saudi Arabia oil fields, causing a ~5.7mn bl/d drop in oil production, equivalent to 5% of global output.

Looking ahead:

Gas and power contracts are expected to remain high in the coming weeks, amid cooler temperatures and higher demand, as well as from ongoing European developments, in particular the possibility of nuclear shutdowns in France. Similarly, oil prices are likely to be supported as Saudi Arabian production stays offline, whilst the need for Asia to replenish low coal stocks may push coal prices higher.

Third party charges and industry updates:

On 9 September, Ofgem confirmed the costs of the Feed-in Tariff (FiT) scheme for 2018-19. Total generation payments made to FiT installations came to £1.4bn, with an additional £55.5mn made in deemed export payments. The outturn cost to the consumer was £5.6/MWh, equivalent to ~£18.2/year on the domestic consumer bill.

Wholesale Power and Gas

Power:

In addition to increasing gas prices, power contracts were also pushed higher by news of safety shortcomings at a number of French nuclear reactors, leading to concerns over shutdowns to address the issues.

The summer 19 contract rose 5.5% to £55.5/MWh and summer 20 power climbed 4.9% to £44.8/MWh.

Gas: 

The announcement from the Dutch government that the Groningen gas field, Europe’s largest onshore gas field, will cease production in 2022, eight years earlier than planned and an ECJ ruling which will restrict the amount of Russian gas flowing in to Europe caused gas prices to spike.

Winter 19 gas jumped 6.9% to 50.2p/th and the summer 20 contract gained 4.9% to 44.8p/th.

Third Party Charges and Industry Updates

Feed-in Tariff annual levelisation information sent to suppliers

Feed-in Tariff (FiT) annual levelisation invoices for 2018-19 were sent to suppliers on Monday 9 September, confirming and reconciling total scheme costs and FiT-liable and exempt electricity demand volumes for the year. Total generation payments made to FiT installations came to £1,408,981,588, with an additional £55,517,775 made in deemed export payments. It was confirmed that suppliers supplied a total of 276.6TWh of electricity in 2018-19, but that 9.8TWh will be exempt from scheme costs with the Guarantee of Origin import cap breached with 33.3mn presented. The outturn cost to the consumer was £5.6/MWh, equivalent to ~£18.2/year on the domestic consumer bill.

Wholesale gas and electricity prices surge amid adverse developments

Wholesale energy prices in the GB market and across Europe rose sharply on Tuesday amid a series of adverse developments affecting production and flows across the Continent. EDF France announced on Tuesday 10 September that it had discovered problems with components in its nuclear reactors. Also, as reported by Euronews, the European Court of Justice (ECJ) overturned a previous ruling that had allowed Gazprom to utilise more than half of the capacity of the OPAL gas pipeline that connects Germany with the Russian-backed Nord Stream pipeline, potentially curtailing flows from the country. Additionally, as reported by DutchNews, the Dutch government confirmed plans to formally cease production at the onshore Groningen gas field eighty years ahead of schedule in 2022, citing the potential for an increased reliance on gas imports as an alternative.

Breakdown of Third Party Charges on the electricity and gas bill for 2019-20