Most wholesale power and gas contracts continued to decrease over the last two weeks, reaching new historical lows. The continuation of LNG deliveries into the UK and forecasts of lower gas demand moving into the future drove gas prices downwards. Power prices were heavily influenced by the fall in gas prices, while a decline in the price of carbon allowances added further pressure to power contracts.
Current forecasts are predicting a continuation of recent warm weather into April, driving demand lower and keeping gas prices at multi-year lows. Several LNG tankers are expected to arrive early in the month, maintaining a comfortable supply outlook and providing further pressure to gas prices. However, oil prices could provide some upside as ongoing OPEC+ production cuts support Brent crude oil over the coming months.
Third party charges and industry updates:
Renewables accounted for 33.3% of all UK generation in 2018, according to new energy trends statistics released by BEIS (The Department for Business, Energy and Industrial Strategy) on Thursday 28 March. BEIS said this was due to an increase in renewable capacity between 2017 and 2018, from 3.9GW to 4.4GW. The Government published a note detailing carbon price arrangements in the event of a no deal Brexit. A new tax would be introduced to replace the EU ETS carbon price, with a price of £16/tonne, accounting for ~£8/MWh of wholesale power prices.
Wholesale Power and Gas
The majority of seasonal baseload power contracts out to summer 2021 continued their recent downward movements over the last two weeks, with lower gas prices directly feeding into power prices. The price of carbon allowances has also decreased in recent weeks, placing further downward pressure on power contracts. Summer 19 power fell 5.9% to £42.8/MWh and winter 19 power lost 2.7% to £53.6/MWh.
Gas for delivery in summer 2019 dropped 9.0% to 35.5p/th, its lowest level since June 2016. Winter 19 gas declined 2.4% to 51.1p/th. Although some NBP gas contracts have fallen to multi-year lows, they are still higher than the corresponding prices in Asia. As a result, this means that GB is still an attractive destination for LNG cargoes. The continuation of LNG deliveries, coupled with expectations of lower gas demand for both heating and power generation has helped to push seasonal gas prices lower.
Third Party Charges and Industry Updates
Government publishes technical note on carbon emissions tax in no deal Brexit
On 29 March, HMRC published a technical note on the carbon emissions tax in the event of a no deal Brexit scenario. The note concerns arrangements to take place on 12 April, the current EU exit date, when the UK would no longer be part of the EU ETS. The government plans to maintain a carbon price for those stationary emitters currently covered by the EU ETS, including power stations. The first tax period would run from 15 April 2019 to 31 December 2019 with a tax rate of £16 per tonne, roughly equal to the current EU ETS price which accounts for ~£8/MWh of the wholesale power price.
Renewables generation hits record high of 33% in 2018
Renewables accounted for 33.3% of all UK generation in 2018, according to new energy trends statistics released by BEIS on Thursday 28 March. BEIS said this was due to a 9.7% increase in renewables capacity between 2017 and 2018, from 3.9GW to 4.4GW. Gas contributed 39.4%, whereas coal only contributed 5%. Additionally, low carbon electricity’s share of generation increased from 50.1% in 2017 to a record high of 52.8% in 2018. High levels of intermittent renewables output often acts to depress wholesale power prices with this trend expected to be more prevalent in the future in more favourable weather conditions.
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