OnlineDIRECT Market Report 5th August 2019

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Key Headlines

Wholesale:

Seasonal power and gas contracts experienced mixed movements over the last two weeks. Nearer-term contracts, such as winter 2019 and summer 2020, moved lower whilst contracts further into the future increased.

Prices were pushed lower by falling oil and coal prices. However, EU carbon allowances – which is factored into the price of power generation – rose to an 11-year high of €29.7/t (Figure 1), reducing the impact of the fall in oil and coal prices.

Looking ahead:

Gas supply is expected to fall in the coming weeks as a result of maintenance at UK gas fields, while LNG deliveries have fallen in recent weeks. This could push gas and power prices upwards. However, available power generation capacity will rise following the return of nuclear plants which had been offline for planned maintenance. Mixed signals in the oil market will remain with tensions in the Middle East conflicting with concerns of slowing demand growth.

Third party charges and industry updates:

The EMR Delivery Body confirmed the next Contracts for Difference auction for renewables will commence on 9 August. The auction is for Delivery Years 2023-24 and 2024-25 and has a budget of £65mn (2011-12 money). RWE confirmed plans to close its 1.6GW coal-fired power station, Aberthaw B, citing challenging market conditions. This will leave four operational coal-fired power stations in the UK (three in England and one in Northern Ireland.)

 

 

Wholesale Power and Gas

Power:

Seasonal power contracts experienced mixed movements. The winter 2019 contract fell 2.2% to £56.7/MWh, although summer 2020 power was unchanged at £50.7/MWh. In contrast, power for delivery in winter 2021 gained 4.3% to £57.0/MWh.

Power contracts followed the gas market closely, although a rise in the cost of EU carbon allowances acted to limit losses.

Gas: 

Most gas contracts decreased over the last two weeks. Gas for delivery in winter 2019 dropped 3.8% to 51.0p/th. Summer 2020 gas lost 1.3% to 46.3p/th.

Seasonal gas contracts were pressured by a decline in Brent crude oil prices, which lost 1.9% to $61.8/bl. Despite escalating tensions between Iran and the US and UK, oil prices continued to be pushed lower by concerns of a slowdown in global oil demand growth amid the ongoing trade war between the US and China.

 

 

 

 

 

Third Party Charges and Industry Updates

Cfd Allocation Round 3 Auction set for August 9th

In an announcement published on 31 July, the EMR Delivery Body confirmed that the sealed bid window for Contracts for Difference (CfD) Allocation Round 3 (AR3) will commence on 9 August. The CfD scheme is designed to bring forwards new renewable generation capacity through a competitive auction process.  CfD AR3 has a budget of £65mn (2011-12 money), an overall capacity cap of 6GW and is for Delivery Years 2023-24 and 2024-25. Results of the auction process are scheduled to be released between 6 – 9 September, with offshore wind projects expected to be awarded the majority of contracts. The costs of the CfD scheme currently represents ~£5/MWh – £6/MWh on the consumer bill, and as more projects commission this will rise above £10/MWh in the 2020s.

RWE announces the closure of Aberthaw Power Station

RWE has confirmed plans to close the 1,560MW Aberthaw B coal fired power station, citing challenging market conditions, which has come from the recent rise in EU ETS carbon prices. Announced on Thursday 1 August, RWE will transfer Aberthaw Power Station’s existing Capacity Market agreements for the years 2019-2020 and 2020-2021 to third parties and a small proportion to other units within RWE’s fleet. In doing so it is assured that the total amount of capacity available under the Capacity Market remains the same. Consultation with affected staff and employee representatives is now underway, where the proposed date of closure is 31st March 2020.

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