Market Report – November 13th 2018

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Key Headlines

Wholesale:

Wholesale power and gas prices have continued to retreat from their recent highs, with all seasonal gas and power contracts decreasing over the last two weeks. Gas and power contracts have followed downward movements in the underlying commodities of oil and coal, with the price of carbon emissions little changed over the same period.

Looking ahead:

In the next two weeks, we have a neutral outlook for wholesale power and gas prices. On the bullish side, periods of low wind output this week will tighten power supply margins and could boost the price of power for immediate delivery, while a potential rebound in commodities could support seasonal power and gas contracts. On the bearish side, returning nuclear capacity, high LNG imports from overseas and above seasonal normal temperatures could dampen prices, both in the near and longer-term.

Third party charges and industry updates:

The UK Budget was delivered by Chancellor Philip Hammond on 29 October. While there was little on energy in the speech, the Budget documents confirmed the Climate Change Levy (CCL) rates to 2020-21, with a rebalancing of the rates for gas and electricity. The government also confirmed it will again freeze the Carbon Price Support – a tax for emissions on top of the EU Emissions Trading Scheme – at £18/t until the end of 2020-21.

Wholesale Power and Gas

Power:

Seasonal baseload power contracts continued to ease away from recent highs. The summer 19 wholesale power price lost 2.5% to £55.6/MWh, whilst the winter 19 contract dropped by £1.0/MWh to £61.2/MWh. Power prices were pushed lower by falling gas and commodity prices as well as a generally healthy outlook for power supplies in the future.

Gas: 

Seasonal gas prices also continued to decrease further. The summer 19 contract fell 4.3% to 56.6p/th and winter 19 gas declined 3.7% to 65.0p/th. A large influx of LNG deliveries into the UK and North West Europe in recent weeks helped to push gas contracts for this winter lower, with this sentiment extending into the front season (summer 19 and winter 19) contracts

Supplier Tariff Movements

In September, 31 suppliers changed their price banding, with 28 applying price increases on their cheapest domestic tariffs. 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. Higher tariff rates have been a result of increased wholesale power and gas prices during 2018, as well as rising Third Party Charges. However, the recent decline in wholesale prices could provide some respite to upward movements of tariffs.

Third Party Charges and Industry Updates

Autumn Budget changes CCL rates and clarifies carbon pricing

The UK Budget was delivered by Chancellor Philip Hammond on 29 October. While there was little on energy in the speech, the Budget documents confirmed the Climate Change Levy (CCL) rates to 2020-21, with a rebalancing of the rates for gas and electricity. The CCL is a tax on energy delivered to non-domestic users in the UK and represents approximately 8% of TPCs on a SME’s electricity bill. The electricity rate will be lowered in 2020-21 and 2021-22, whilst the gas rate will increase in 2020-21 and 2021-22 so it reaches 60% of the electricity main rate by 2021-22.

The government also confirmed it will again freeze the Carbon Price Support (CPS) – a tax for emissions on top of the EU Emissions Trading Scheme (EU ETS) – at its current level of £18/t until the end of 2020-21. However, the Chancellor also highlighted the recent high prices of the EU ETS, which are now at £17/t, and said he may therefore seek to reduce the CPS after 2021 if the total carbon price remains high. The CPS and EU ETS adds approximately £14/MWh to the wholesale cost of electricity, so has a considerable impact on the bill. The total carbon price (EU ETS and CPS) is shown in Figure 1 in the headlines and shows the recent volatility in EU ETS prices.

Larger businesses will also benefit from a new fund under the Industrial Strategy. The government will establish an Industrial Energy Transformation Fund, backed by up to £315mn of investment, to support businesses with high energy use to transition to a low-carbon future and to cut their bills through increased energy efficiency. A new call for evidence will also shortly be launched on introducing a new Business Energy Efficiency Scheme, focused on smaller businesses.

By OnlineDIRECT Marketing Team