Key Headlines

Wholesale:

The majority of seasonal power and gas contracts increased over the last two weeks. However, the front season contract (summer 2020) for both power and gas continued to move lower.

Commodity markets saw mixed movements, as Brent crude oil prices moved lower whilst coal and carbon emission prices rose. Oil prices continued to be impacted by concerns of lower demand as a result of the coronavirus outbreak, while carbon emission prices were supported by strong demand for allowances.

Looking ahead:

It is unlikely that seasonal gas and power contracts will rise in the coming weeks, with mild temperatures set to remain and record low LNG prices likely to keep GB prices low.

However, the prospect of OPEC and other oil producing nations such as Russia agreeing to greater production cuts in response to weak oil demand could provide some upward momentum to offset the above factors, which may feed through into the gas market.

Third party charges and industry updates:

The T-1 Capacity Market (CM) auction provisionally cleared at £1.00kW and procured 1,024MW of de-rated capacity. The auction was held one week after the T-3 and procured additional generation capacity for next winter. The low clearing price means that the outcome of the auction will have a minimal impact on consumer costs of the scheme for 2020-21..

Wholesale Power and Gas

Power:

Most seasonal power contracts fell over the last fortnight. However, summer 20 power lost 3.7% to £33.5/MWh. The contract has continued to be influenced by a lower price for the equivalent gas contract, whilst the effects of record high wind generation and warmer than normal temperatures have fed through from the day-ahead market.

The remaining contracts moved higher, as winter 21 power gained 5.7% to £46.3/MWh.

Gas: 

Similar to the power market all but one seasonal gas contract increased over the first half of February. The summer 20 contract was the exception, falling 6.0% to 23.0p/th. The continuation of mild temperatures, high gas storage levels throughout Europe and LNG oversupply acted to push the contract down.
All other seasonal contracts increased with the winter 21 contract jumping 9.1% to 42.9p/th.

Third Party Charges and Industry Updates

CM T-1 provisionally clears at £1.00/kW

The T-1 Capacity Market (CM) auction – a government scheme to help ensure security of supply – provisionally cleared at £1.00kW and procured 1,024MW of de-rated capacity. The auction was held one week after the T-3 auction and procured additional generation capacity for next winter. The low clearing price represents the currently comfortable electricity supply situation in GB, and means that the outcome of the auction will have a minimal impact on consumer costs of the scheme for 2020-21. The CM currently represents ~£3.9/MWh on a non-domestic electricity bill, and is expected to rise slightly for 2020-21.

Consultation issued on modification to charge BSUoS on gross demand

National Grid ESO issued the workgroup consultation for CMP333 BSUoS – Charging Supplier Users on Gross Demand on Thursday 13 February that implements one of Ofgem’s Targeted Charging Review decisions. The modification would charge suppliers for balancing services use of system (BSUoS) based on their gross demand, rather than net of generation as at present, so removing one of the generator embedded benefits. Due to the larger chargeable volume over which BSUoS charges are spread, the change is expected to lead to a reduction in the BSUoS charge of around 10% on average over a year. BSUoS costs are currently forecast to represent approximately £3.6/MWh on the consumer bill in 2020-21.