Key Headlines

Wholesale:

The past fortnight saw most contracts fall, with the impact of oversupply and mild temperatures exacerbated by reduced demand over Christmas.

All gas contracts fell, with summer 20 gas reducing 11.0% from 33.7p/th to 30.0p/th. The oversupply of gas has persisted globally, alongside mild weather during the festive period reducing demand.

Brent crude oil (Figure 1) peaked at $68.6/bl rising 3.2% from £66.5/bl, with heightened geopolitical tensions following the US airstrike on Baghdad.

Looking ahead:

With temperatures forecast to remain above the seasonal average, gas and power prices are likely to remain suppressed.

Brent crude prices have seen much volatility, and this is expected to continue. Looking ahead, rising tensions are likely to be the key driver in prices, with the signing of the Phase One US-China Trade Agreement set to take place on 15 January.

Third party charges and industry updates:

On 12 December, National Grid ESO raised a proposal for a transmission demand residual reform, introducing changes to how Transmission Network Use of Systems (TNUoS) charges are recovered. Suppliers tariff rates for the Smart Export Guarantee have been published, with 13 suppliers obligated to offer a tariff, due to having greater than 150,000 customers. Fixed rate tariffs range from 5.6p/kWh to 0.001p/kWh.

Wholesale Power and Gas

Power:

Most seasonal power contracts fell over the past fortnight, with reductions seen in all contracts except for summer 21, which rose 0.2% from £43.7/MWh to £43.8/MWh. Summer 20 power saw the greatest decline, falling 6.5% from £42.2/MWh to £39.4/MWh.

Power prices followed gas with reductions in part due to the festive period, where demand is typically reduced. This occurred alongside sustained mild temperatures – remaining above seasonal average for the entire two-week period – acting to reduce demand further.

Gas: 

Over the previous two weeks, all gas contracts declined. The summer 20 contract saw the largest reduction, falling 11.0%, from 33.7p/th to 30.0p/th, amid reduced demand and a global oversupply of gas, with LNG send-out reaching an 11-year high.  Russia and Ukraine announced the signing of their new transit deal, providing further downward pressure to prices.

Third Party Charges and Industry Updates

Proposal raised on transmission demand residual reform

CMP332 Transmission Demand Residual Bandings and Allocation (TCR) was raised by National Grid ESO on Thursday 12 December. The urgent modification aims to introduce changes to how the residual element of demand Transmission Network Use of System charges is recovered, following Ofgem’s decision on the Targeted Charging Review. The change will ensure that residual charges are recovered from final demand only, introducing charging bands based on maximum import capacity or consumption for non-domestic sites. The total to be recovered from each non-domestic band should be directly proportional to the band’s consumption as a percentage of total national gross consumption.

Large variation in Smart Export Guarantee tariff rates

Energy suppliers have published their tariff rates under the Smart Export Guarantee (SEG), which came into effect on 1 January. Under the SEG, electricity suppliers that have more than 150,000 customers are required to offer at least one tariff for power exported to the grid from renewables generators smaller than 5MW. Obligated suppliers are required to offer tariffs with rates above 0p/kWh. The Solar Trade Association has published the initial tariffs and rates being offered by 13 obligated suppliers. Fixed rate SEG rates range from 5.6p/kWh (Social Energy) to 0.001p/kWh (Shell Energy). Bulb Energy and Octopus Energy are offering flexible SEGs that are pegged to half-hourly wholesale rates.