Key Headlines

Wholesale:

All contracts fell over the last two weeks, driven by multiple factors including oversupply and fluctuating weather conditions.
Oversupply in the gas market, specifically from LNG has dominated the reduction of 11.4% to 35.1p/th in summer 20 contract, with losses also driven by spells of mild weather.

Coal prices fell 6.4% to $60.5/t (Figure 1), with the EU parliament’s declaration of a climate and environmental emergency placing pressure on member states to phase out fossil fuel subsidies by 2020

Looking ahead:

Continued oversupply in LNG and storage stocks will likely continue to place downward pressure on gas prices, but prices could find support from disruption in Europe with Russia and Ukraine yet to agree a new gas transit deal.

OPEC+ members agreed to deepen current production cuts by 500,000 bl/d but failed to commit to any longer term changes.

Third party charges and industry updates:

On 29 November, German energy group E.ON announced the acquisition and restructuring of UK-based npower, which will take place over the next two years. On 5th December Ofgem announced the final RO shortfall amount, from the 31 October late payment deadline. On the deadline, £97.5mn was owed which will now be recovered by mutualisation, having exceeded the mutualisation threshold

Wholesale Power and Gas

Power:

All seasonal power contracts fell over the last fortnight. Summer 20 prices saw the greatest change, falling 6.5% to £42.5/MWh and winter 20 lost 3.8% to £50.5/MWh.

These reductions followed the gas market, while relatively high levels of wind generation over the last two weeks helped to push near-term prices down, with this movement also feeding in to seasonal contracts.

Gas: 

Seasonal gas contracts also dropped this week, with summer 20 seeing a fall of 11.4% to 35.1p/th, and winter 20 reducing by 7.0% to 45.9p/th.

Oversupply in the LNG market has caused prices to plummet, with the week to date being the second consecutive week of reductions in Asian LNG prices. Temperatures have oscillated between seasonally-high and below-seasonal norms, placing varied stresses to gas demand, but overall have acted to further the price reduction seen.

Third Party Charges and Industry Updates

Ofgem announced RO payment shortfall for CP17

On 5^th December, Ofgem announced the total shortfall from RO payments for the 2018/19 Compliance Period. The total shortfall on the late payment deadline of 31 October reached £97,507,140.70 which will now be mutualised, having exceeded the £16.94mn mutualisation trigger. From this mutualisation total, £88.1mn is applicable to England and Wales, with £9.4mm applicable to those under the RO in Scotland. Mutualisation does not apply to Northern Ireland, so NI suppliers will remain unaffected. Of the suppliers that failed to pay by the 31 October deadline, 16 are now either in administration or have had their licences revoked.

E.ON announced £500mn restructuring of npower

German energy group E.ON announced the acquisition of UK-based supplier npower, following E.ON’s takeover of npower’s parent company Innogy being cleared by the European Commission. In this acquisition, E.ON announced it is to restructure the British energy supplier; remaining small and medium-sized business customers will be served through E.ON UK on a shared IT platform, whilst I&C customers will be managed separately. In the announcement, E.ON stated that npower’s remaining operations will be restructured over the next two years, with the acquisition expected to deliver at least £100mn in EBIT from 2022.