Key Headlines

Wholesale:

Power and gas for delivery this winter decreased over the last two weeks, while most other seasonal contracts moved higher. Reduced concerns of restricted gas and power supplies this winter saw the winter 19 contracts decrease.

Brent crude oil rose 4.3% to $62.6/bl. Prices spiked to $68.7/bl on 17 September, following drone strikes on Saudi Arabian oil infrastructure, before easing following a quicker than expected recovery in production. This acted to push many wholesale gas and power contracts up during September.

Looking ahead:

Despite forecasts of cooler temperatures and higher gas demand, gas supplies are expected to remain comfortable following the arrival of several LNG tankers early in October. This will act to keep prices from showing any significant gains in the near-term.

Global commodity prices are forecast to remain close to their current levels over the coming weeks.

Third party charges and industry updates:

On 20 September, department of Business, Industry and Energy Strategy announced the results of the latest Contracts for Difference auction. The auction cleared at record low prices with 5.77GW of capacity awarded. The current cost to consumers of the CfD is ~£5.5/MWh and is forecast to rise with new projects commissioning during the 2020s. On 27 September, BEIS published the number of Renewable Obligation Certificates that electricity suppliers are required to source during 2020-21.

Wholesale Power and Gas

Power:

The winter 2019 power contract dropped 3.5% to £53.6/MWh. The contract decreased after EDF announced that it would not have to shutdown any of its French nuclear reactors to address the recently disclosed safety issues.

However, prices further along the curve increased with summer 20 power gaining 0.9% to £49.6/MWh and the winter 20 contract rising 1.4% to £56.3/MWh.

Gas: 

Winter 2019 gas lost 3.9% to 48.2p/th, following reports that Russia and Ukraine are close to agreeing an extension to their gas transit deal. In recent months there has been concerns of a drop in gas supply into Europe from Russia due to the upcoming expiry of the current deal.

In contrast, other gas contracts rose as summer 20 gas lifted 1.4% to 45.4p/th and winter 20 gas gained 2.4% to 54.8p/th.

Third Party Charges and Industry Updates

Contracts for Difference Allocation Round 3 results published

On 20 September, department of Business, Industry and Energy Strategy announced the results of the Contracts for Difference (CfD) Allocation Round 3. The auction results cleared at record low prices with 2023-24 delivery year prices at £39.65/MWh and 2024-25 prices at £41.61/MWh (2012 money). 5.77GW of capacity was awarded to 12 projects, with remote island wind winning contracts for the first time. Overall, two advanced conversion technology projects, six offshore wind projects and four remote island wind projects were awarded contracts. The current cost to consumers of the CfD is ~£5.5/MWh, equivalent to ~£18/year on the consumer bill and is forecast to rise with new projects commissioning during the 2020s.

Renewables Obligation level published

BEIS published the Renewables Obligation (RO) level on 27 September – the number of ROCs that electricity suppliers are required to source during the 2020-21 obligation period is 0.471 ROCs per MWh in Great Britain and 0.185 ROCs per MWh in Northern Ireland. BEIS’s calculation estimates that 112.9mn ROCs will be produced in the compliance period, excluding headroom. Including 10% headroom gives a total obligation of 124.1mn ROCs in the UK. BEIS has also updated its energy intensive industry (EII) exemption forecast for 2020-21 to 10.8TWh, with the inclusion of the flour milling sector to the list of exempt EIIs. BEIS’s publication confirms the cost of the RO will be £22.98/MWh (2019-20 money) to non-exempt GB consumers in 2020-21.

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