OnlineDIRECT Market Report 21st January 2019

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Key Headlines

Wholesale:

Wholesale power and gas prices have experienced gains over the last two weeks. Colder temperatures saw near-term gas prices move higher, with this trend also observed in the power market. Gas-fired power plants currently produce around 40% of GB’s electricity, so movements in gas prices generally feed through into the power market. The rises in near-term contracts, along with an uplift in global commodity prices pushed, seasonal power and gas contracts higher.

Looking ahead:

Despite comfortable supplies, gas prices are expected to rise in the coming weeks as forecasts of temperatures well below seasonal normal levels will see an increase in demand. Higher gas prices will feed into the power market, whilst low levels of wind generation and reduced nuclear availability will also provide support. Furthermore, forecasts of higher EU ETS carbon prices, which are factored into the cost of power generation, will add upwards pressure to prices.

Third party charges and industry updates:

On 8 January, government proposed a replacement for the Feed-in-Tariff scheme which is due to close on 31 March 2019. The Smart Export Guarantee (SEG) would place an obligation on electricity suppliers with greater than 250,000 domestic electricity supply customers to offer small-scale generators a price per kWh for the electricity they export to the grid. Government have said that the SEG should not have an impact on the amount of money that consumers pay for low-carbon levies.

Wholesale Power and Gas

Power:

Seasonal baseload power contracts out to winter 2021 have moved higher in the last two weeks, following gas and global commodity prices upwards. Power for delivery in summer 2019 lifted 2.1% to £57.2/MWh, whilst power for delivery in winter 2019 rose 2.5% to £63.7/MWh. The cost of carbon in the EU Emissions Trading Scheme (EU ETS) climbed €1.0/t to €24.5/t. Power generators have to pay this to cover their emissions from generating electricity, and as such the cost of this is added to wholesale power prices.

Gas: 

Seasonal baseload power contracts out to winter 2021 have moved higher in the last two weeks, following gas and global commodity prices upwards. Power for delivery in summer 2019 lifted 2.1% to £57.2/MWh, whilst power for delivery in winter 2019 rose 2.5% to £63.7/MWh. The cost of carbon in the EU Emissions Trading Scheme (EU ETS) climbed €1.0/t to €24.5/t. Power generators have to pay this to cover their emissions from generating electricity, and as such the cost of this is added to wholesale power prices.

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 remained as market leader 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

BEIS proposes route to market for small-scale renewables

The government has announced a proposed replacement scheme for the export tariff under the FiT scheme, called the Smart Export Guarantee (SEG). Announced on Tuesday 8 January, the SEG is planned to guarantee new small-scale renewable electricity providers payment from suppliers for electricity exported to the grid. The proposed design would see BEIS mandate that larger electricity suppliers (>250,000 domestic electricity supply customers) offer small-scale generators a price per kWh for the electricity they export to the grid. Exported power would have to be metered, with suppliers obliged to provide at least one export tariff. Suppliers would determine the tariff per kWh for remuneration, and the length of the contract. Views are invited by 5 March. Government have said that this new mechanism should not have an impact on the amount of money that consumers pay for low carbon levies, and is in line with government’s strategy to introduce market-based solutions to aid the development of small-scale renewables.

Brexit defeat brings renewed uncertainty for energy industry

Prime Minister Theresa May’s Brexit deal was defeated in the Commons on 15 January by 432 votes to 202, with industry saying this prompts uncertainty on the UK’s future energy relationship with the EU. Energy UK Chief Executive Lawrence Slade said the vote means “continued uncertainty for business. As the Parliamentary discussions continue, we reiterate our serious concerns over a possible no-deal Brexit which would be so damaging for the energy sector and its customers.” He added that it was critical that the smooth functioning of markets and the flow of gas and electricity between the UK and the EU continues in order to ensure bills are kept down and climate action continues.

By OnlineDIRECT Marketing Team