Market – Report December 10th 2018

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Key Headlines

Wholesale:

Wholesale power and gas prices continued their recent downward trajectory over the last two weeks. This followed decreases in the prices of underlying commodities oil and carbon, whilst a small increase in coal prices had little effect on power and gas prices.

Looking ahead:

In the next two weeks, we have a bullish outlook for wholesale power and gas prices. Gas and power demand is expected to rise, in line with a forecast drop in temperatures, whilst outages at two gas entry terminals will reduce the flow of gas into the UK.

In addition, OPEC’s agreement to cut oil production by 1.2mn barrels per day from 2019 to tackle the current oversupply, should see oil prices increase, and in turn offer support to seasonal gas contracts.

Third party charges and industry updates:

In the last two weeks, BEIS has issued an update on the state of the Capacity Market (CM) following its recent suspension, and Ofgem has confirmed the suppliers who failed to pay for the Renewables Obligation. The headlines from these updates include the announcement that a T-1 Capacity Market auction will be held in summer 2019, with agreements conditional on the outcome of the State Aid process and the confirmation that the Renewables Obligation shortfall totalled £58.6mn.

Wholesale Power and Gas

Power:

Seasonal baseload power contracts out to winter 2020 moved lower, falling by 1.6% on average. With lower oil prices weighing on gas contracts and a decrease in EU ETS carbon prices, wholesale power contracts ultimately followed the rest of the market down. The summer 19 wholesale power price fell 2.5% to £55.3/MWh, whilst the winter 19 contract lost £1.2/MWh to £61.3/MWh.

Gas: 

Seasonal gas prices continued to move lower. The summer 19 contract dropped 2.8% to 54.7p/th and winter 19 gas decreased by 1.6p/th to 63.1p/th. Brent crude oil prices continued to experience notable losses with concerns over an oversupplied market persisting, dropping from $61.9/bl to $60.6/bl, with these movements feeding into the gas market.

Supplier Tariff Movements

In October, 23 suppliers moved up the price banding of their cheapest dual fuel products, with just three moving down. Of the three downward movements, the largest was seen from Simplicity Energy which launched a new 12-month fixed tariff priced at £1,048 per year on average. The largest price increases of over £100 were applied by several of the ‘Robin Hood’ White label suppliers. They had previously offered some of the market leading fixed tariffs in September. Domestic tariff movements are usually indicative of for small and medium sized business rates, as the bills are largely made up of the same components.

Third Party Charges and Industry Updates

BEIS issues Capacity Market update, Ofgem confirms suppliers who failed to pay for the Renewables Obligation

On 6 December, BEIS issued an update on the current state of the CM and the timings regarding the regaining of State Aid clearance. The headlines from the update included the announcement that a T-1 auction will be held during summer 2019 for delivery in winter 2019-20, with any agreements conditional on the outcome of the process to gain State Aid. The European Commission is expected to formally commence the process for the CM to gain State Aid clearance in early 2019. Also, National Grid has been requested by the government to continue to operate the CM, bar making payments to agreement holders, to ensure agreement holders would be eligible for any deferred payments should they be permitted under State Aid.

On 30 November, Ofgem confirmed the list of all suppliers who failed to pay their Renewables Obligation (RO) by the 31 October late payment deadline, plus the details of the amounts each company owes. Of the 34 suppliers that failed to meet their obligation by the 1 September deadline, 20 fully discharged their obligation by the late payment deadline of 31 October. The total shortfall as a result of the failure to pay was £58.6mn, across both the RO and the RO Scotland, triggering mutualisation for the first time. Of the suppliers who still owe outstanding payments, Ofgem has commenced investigations into Economy Energy and Spark Energy, but with the latter investigation ending after Spark Energy ceased trading and was acquired by OVO Energy.

By OnlineDIRECT Marketing Team