Wholesale power and gas prices have diverged since the middle of December. Seasonal gas contracts continued to fall moving towards and during the Christmas period, whilst most seasonal power contracts edged higher. Oil and coal prices also moved lower, however, the price of carbon emission allowances experienced strong gains during the end of 2018 and the start 2019.
The current outlook for wholesale prices over the coming weeks is somewhat mixed. Oil and carbon prices are expected to rise, with global oil production cuts commencing, and the start of supply curbing measures in the EU ETS carbon scheme. These rises are expected to feed into the wholesale power market. In contrast, we expect gas prices to remain at current levels, although the Met Office has highlighted the risk of a cold snap later this month and into February. This could later support wholesale gas prices, which in turn will feed into the power market.
Third party charges and industry updates:
On 18 December, the government confirmed that the Feed-in-Tariff scheme will close to new applicants from 31 March 2019. The scheme currently contributes around 7% of Third Party Charges on the electricity bill. Payments to cover the Capacity Market could still be collected despite the current standstill of the scheme. It has been argued that allowing the collection of funds during the standstill will protect industry and consumers should the scheme be reinstated.
Wholesale Power and Gas
Seasonal baseload power contracts out to winter 2021 moved higher despite a decrease in gas prices. A sharp resurgence in the price of carbon emission allowances – which is factored into the cost of power generation – helped push power contracts higher. The summer 19 wholesale power price gained £0.7/MWh to £56.0/MWh, whilst the winter 19 contract climbed 1.4% to £62.1/MWh.
Seasonal gas prices out to summer 2021 continued to move lower. The summer 19 contract lost 1.8% to 53.7p/th and winter 19 gas dropped 1.6% to 62.1p/th. The sustained fall in Brent crude oil prices which lost a further 5.7% to $57.1/bl, has helped push gas prices lower with the two markets remaining interlinked. Additionally, the large volumes of Liquified Natural Gas received in recent months, has also pressured prices with a well-supplied market.
Supplier Tariff Movements
In November, 19 suppliers moved down one or more bandings, with the greatest decrease in cheapest dual fuel offering seen by Toto Energy with the launch of its Online Fixed Saver at £980/year. Powershop remains as market leader this month despite implementing a £49/year increase on its cheapest dual fuel offering. Analysis has revealed that there were 57 price rises for domestic customers recorded in 2018 – up from 15 the year before – the worst on record for price rises.
Domestic tariff movements are a useful proxy for small and medium sized business rates, as the bills are largely made up of the same components.
Third Party Charges and Industry Updates
Government confirms closure of Feed-in-Tariff scheme, Capacity Market Supplier Charge to remain
The government published its response to the findings of its consultation on the closure of the Feed-In-Tariffs (FiT) scheme to new applicants from 31 March 2019. This confirmed that it would go ahead with the closure, including export tariffs. Released on Tuesday 18 December, the government said that this decision was reached following a consultation and “reflects our desire to move towards fairer, cost reflective pricing and the continued drive to minimise support costs on consumers as set out in the Control for Low Carbon Levies.” It added that the FiT scheme does not “support the vision set out in the Industrial Strategy and Clean Growth Strategy.” The announcement follows Energy and Clean Growth Minister Claire Perry stating in the Commons in November that “solar power should not be provided to the grid for free.”
A proposal has been raised to allow the collection of the Capacity Market (CM) charge that suppliers have to pay to subsidise the scheme while the scheme is at a standstill. As part of the suspension of the scheme all payments to capacity providers – which are funded by charges on the consumer bill – were stopped. It was argued that allowing suppliers to collect and pay the charge during the standstill would protect industry and consumers should the CM be reinstated. The funds would be withheld until the reinstatement of the scheme, at which point they would either be released to capacity providers or paid back to energy suppliers. The CM scheme currently contributes around 3% (£2.6/MWh) of total TPCs on the consumer electricity bill.
By OnlineDIRECT Marketing Team