Wholesale power and gas prices continued to decrease over the last two weeks, with some contracts dropping to their lowest levels since May 2018. Strong gas supplies from Norway and imports of Liquefied Natural Gas caused gas prices to fall. This drop in gas prices, coupled with a decline in the price of carbon emission allowances, fed through into the electricity market driving power prices down.
Milder temperatures and comfortable supplies of gas are expected to continue to push gas prices lower over the next few weeks. This trend is likely to feed through into power prices, particularly while electricity supply margins remain healthy for the foreseeable future, despite the announcement that Cottam coal-fired power station will close in September 2019. However, there is potential for rising oil prices to offset and limit the extent of downward movements in wholesale power and gas prices.
Third party charges and industry updates:
EDF Energy announced that it will close the 2,000MW Cottam coal-fired power station at the end of September 2019. EDF cited challenging market conditions and the decarbonisation of electricity generation as factors behind the decision. Ofgem confirmed that both the default tariff and prepayment price caps will increase on 1 April, due to wholesale costs being higher compared to the last cap period. On average, the default tariff will rise by £117 and the prepayment cap by £106.
Wholesale Power and Gas
Seasonal baseload power contracts out to summer 2021 decreased over the last two weeks, with a notable fall in the price of power for delivery in summer 2019. Power for delivery in summer 2019 fell by 5.1% to £49.2/MWh. On Wednesday 13 February, the contract fell to £48.8/MWh, its lowest level since the end of June 2018. Seasonal power prices were driven lower by falling gas prices and a drop in the price that power generators have to pay for emitting greenhouse gasses.
Seasonal gas prices out to summer 2021 also moved lower and similar to power the summer 19 contract saw the largest decline. The summer 19 contract dropped by 4.8% to 45.9p/th. Like the equivalent power contract, summer 19 gas fell to a notable low on 13 February, hitting its lowest price since early May 2018. Seasonal gas prices continued to be pushed downwards by a comfortable supply outlook, particularly with an influx of Liquefied Natural Gas deliveries.
Supplier Tariff Movements
In December, 15 suppliers moved down one or more bandings whilst 11 moved higher. The greatest decrease in dual fuel tariff prices was seen by Scottish Power with its standard variable tariff dropping by £120/year to bring it in line with the price cap of £1,137/year. Utility Point replaced Powershop as the market leader with an 18-month dual fuel fixed deal priced at £903/year. Overall, only 16 tariffs available in December 2018 were priced below £1,000/year, compared to 87 in the previous year.
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
EDF to close 2,000MW coal-fired power station
EDF Energy announced that it has taken the decision to end generation at the 2,000MW Cottam coal-fired power station in north Nottinghamshire. The company aims to shut down generation on 30 September 2019, citing “the challenging market conditions over the last few years and the context of the drive to decarbonise electricity generation”. Once closed, this will bring total coal-fired power plant capacity in GB to between 8-9GW, significantly below the 23GW operational in 2011. Despite the closure announcement, wholesale power prices for delivery in winter 2019 continued to fall, with a continued rise in electricity production from renewables.
Ofgem lifts default and PPM price caps due to higher wholesale costs
Ofgem confirmed on 7 February that from 1 April, the levels of the default tariff price cap for domestic customers will rise on average by £117, and the pre-payment meter cap by £106 for the next six-month period to reflect higher costs. While the prices of wholesale energy have fallen in recent months, overall these costs remain 17% higher than the last cap period. In addition, network and policy costs have risen. These account for using and maintaining the transmission and distribution networks, and those that account for low carbon subsidy schemes.
By OnlineDIRECT Marketing Team