All seasonal power and gas contracts decreased over the last two weeks, taking direction from comfortable supplies, and falling commodity prices.
Brent crude oil prices posted significant losses amid concerns of slower than expected oil demand growth as the US-China trade war continued to impact forecasts of global economic growth.
Near-term contracts are likely to be pushed higher with forecasts of lower temperatures leading to increased demand. These movements usually feed into seasonal contracts, albeit with a lesser effect.
However, global commodity markets, in particular, coal and carbon are expected to fall in the coming weeks, providing further downward pressure on seasonal gas and power contracts.
Third party charges and industry updates:
On 9 June, BEIS (Department for Business Energy & Industrial Strategy) confirmed the launch of the Smart Export Guarantee (SEG) to replace the Feed-in Tariff export tariff. SEG will place a legal obligation on suppliers with over 150,000 customers to introduce export tariffs for homes and businesses with up to 5MW of wind, solar or other forms of renewable generation capacity. Unlike the Feed-in Tariff scheme, the SEG will not be an extra cost to the consumer bill. The FiT scheme currently costs approximately £6.30/MWh on the bill.
Wholesale Power and Gas
Seasonal power contracts out to winter 2021 fell over the last fortnight. Power for delivery in winter 2019 lost 3.4% to £55.8/MWh. The summer 2020 contract dropped 2.3% to £47.7/MWh.
Power contracts were pushed lower by decreasing gas prices, whilst a fall in the price of carbon emission allowances added further downward pressure. EU ETS carbon lost 4.6% to €24.3/t.
Seasonal gas contracts also moved lower, with the winter 2019 contract declining 4.2% to 52.0p/th. Gas for delivery in summer 2020 slipped 1.6% to 44.7p/th.
All seasonal gas contracts were driven lower by falling commodity prices, with Brent crude oil losing 8.8% to $62.5/bl. The continuation of LNG deliveries into GB helped keep future supplies – particularly for this winter – healthy with this being reflected in the winter 19 contract.
Third Party Charges and Industry Updates
BEIS launches SEG to guarantee payment for homes and businesses
On 9 June, BEIS announced that the Smart Export Guarantee (SEG) to replace the Feed-in Tariff export tariff would launch on 10 June. In the announcement, BEIS said this will ensure that small-scale electricity generators installing solar, wind or other forms of renewable generation with a capacity up to 5MW will be paid for each unit of electricity they sell to the grid. SEG will place a legal obligation on energy suppliers with over 150,000 customers to introduce export tariffs by 1 January 2020.
Labour pledges that firms without an energy focus will not win public sector contracts
Labour has announced that firms will have to “put people and the planet before profit”, if they are to win public sector contracts if the party came to power. Announced on Friday 31 May, the party stated that it will impose strict environmental standards on energy use, emissions and waste disposal, while taking measures to aid the transition to a net-zero economy. Those who will not place significant focus on reducing their footprint “will be prevented from winning future contracts”.
Breakdown of Third Party Charges 2019-20
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