All seasonal gas and power contracts decreased over the last two weeks, despite rising commodity prices.
Gas contracts moved lower amid comfortable supplies with this influence feeding into power prices. However, losses were limited by rising oil and carbon prices.
Brent crude oil lifted 2.8% to $60.9/bl, supported by a fall in the amount of oil held in US storage and concerns that Hurricane Dorian will cause a temporary shutdown of production in the Gulf of Mexico. EU ETS carbon rose 2.2% to €26.9/t, with easing tensions between the US and China supporting global markets.
Gas and power prices are likely to move higher in the coming weeks amid a drop in temperatures and a decrease in gas flows from Norway. Global commodity markets continue to look mixed, although optimism surrounding US-China trade talks may act to push prices higher.
Third party charges and industry updates:
On 30 August, Ofgem released its forecast costs of administering the Renewables Obligation (RO) for 2019-20. The forecast of £5.5mn represents a 25.4% increase on administration costs in 2018-19. The costs will be recovered in October 2019 from money paid into the RO buy-out fund. Ofgem has also decided that all the Electricity System Operator’s efficiently incurred costs will be passed through to consumers through a Totex funding model.
Wholesale Power and Gas
All seasonal power contracts decreased during the second half of August.
Power for delivery in winter 2019 slipped 2.4% to £52.6/MWh, while the summer 20 contract fell 3.2% to £47.4/MWh. Power prices were pushed lower by falling gas prices, although losses were limited by a rise in carbon emission costs.
Gas contracts also continued to move lower. The winter 19 gas contract dropped 3.7% to 46.9p/th.
Recent maintenance restricting the flow of Norwegian gas to Europe saw higher flows of gas into GB, allowing strong injections into storage sites, creating greater security of supply for the winter months. Summer 20 gas experienced the greatest loss, down 5.1% to 42.7p/th.
Third Party Charges and Industry Updates
Total 2018-19 Renewables Obligation confirmed, 2019-20 administrative costs published
Ofgem announced on 21 August the total Renewables Obligation (RO) for the 2018-19 period is 129.0mn RO Certificates (Rocs). Suppliers have up until 1 September 2019 to meet their obligations for the 2018-19 period. The total cost of the RO in 2018-19 was therefore £6.1bn, equivalent to £22.1/MWh on the consumer bill. On Friday 30 August, Ofgem released its costs from administering the RO. The forecast administrative cost for 2019-20 is £5,538,665, just under 0.09% of the estimated value of the scheme. The regulator said that this is substantially below the benchmarks for the cost of administering government schemes, but that this year’s costs represent a 25.4% increase over the cost of administration in 2018-19.
Consultation issued on financial parameters for ESO price control
The Electricity System Operator (ESO) will be funded through a Totex model, Ofgem has decided, with all its efficiently incurred costs to be passed through to consumers. The regulator issued its decision on Wednesday 28 August, alongside a consultation on setting the financial parameters of the model now it has been confirmed, which includes the allowed returns methodology; the approach to financeability; and the indexation for the Weighted Average Cost of Capital allowance. Ofgem is also considering potential changes to the ESO’s incentive scheme to ensure coherence with its regulatory framework, and to align the framework with different incentives and business plan expectations. Responses to the consultation are requested by 25 September with a final decision expected to be published later this Autumn.
Breakdown of Third Party Charges on the electricity and gas bill for 2019-20