OnlineDIRECT Market Report 4th March 2019

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Key Headlines

Wholesale:

Wholesale power and gas prices continued to decrease over the last two weeks, with some contracts reaching their lowest levels in more than a year, although downward movements did begin to slow. However, lower gas prices were somewhat offset by an increase in the price of oil and carbon emission allowances, which helped power prices from falling even further.

Looking ahead:

Gas supplies are expected to remain comfortable over the next two weeks with a number of LNG deliveries into GB gas terminals scheduled for early March. Additionally, gas demand for power generation is projected to decrease as a result of high levels of wind generation, particularly amid Storm Freya at the moment. These factors point towards a decrease in wholesale power and gas prices, although losses could be limited by increased demand due to a forecast drop in temperatures.

Third party charges and industry updates:

The government confirmed its intentions to collect Capacity Market payments from suppliers once the current standstill of the scheme ends. These charges are recovered by suppliers through the consumer bill, and currently cost ~£2.6/MWh. Government also announced it is working to establish a domestic carbon emissions trading scheme to commence in January 2021. There has been concerns that carbon emitters based in the UK will not have to pay these charges in the event of a no-deal Brexit.

Wholesale Power and Gas

Power:

Seasonal baseload power contracts out to summer 2021 decreased over the last two weeks. However, these price drops were fairly small as higher oil and carbon emission prices offset a fall in gas prices. Power for delivery in summer 2019 declined 1.3% to £48.5/MWh, while power for delivery in winter 2019 slipped just 0.1% to £58.4/MWh.

Gas: 

Seasonal gas prices out to summer 2021 also moved lower. The summer 19 contract lost 2.6% to 44.7p/th and winter 19 gas dropped 1.0% to 58.1p/th. The arrival of four LNG tankers into GB gas terminals and warmer than normal temperatures caused near-term gas prices to fall, with these movements filtering through to seasonal gas contracts.

 

Third Party Charges and Industry Updates

Government publishes Capacity Market response

On 28 February, the government published its response to its consultation which detailed necessary changes to operate the Capacity Market during the current standstill. The standstill has occurred because of a legal challenge against the scheme, which now needs to regain State aid approval from the European Commission, with generator auctions and the collection of payments from suppliers being postponed. The response confirmed that government intends to hold a replacement T-1 auction in summer 2019 for generation capacity to be available over winter 2019-20. Government also said it will mandate that payments required from suppliers are collected and paid in full shortly after the standstill ends. Ultimately, these payments are recovered by suppliers through the consumer bill, with Capacity Market costs forecast to account for 4% of total Third Party Charges on the consumer bill in 2019-20 (~£3.4/MWh).

Government working to establish post-Brexit domestic carbon trading system

Energy and Clean Growth Minister Claire Perry said that the government is working to establish a domestic carbon emissions trading system that it hopes to connect to the existing EU Emissions Trading Scheme (ETS) from January 2021. Under the EU ETS, carbon emitters such as power generators and energy intensive businesses have to pay for allowances to cover the volume of greenhouse gases that they emit. The price of this is included in wholesale power prices. Perry said that if the UK leaves with a deal, it will remain in the EU ETS until the end of the current trading phase at the end of 2020. There has been concerns that carbon emitters based in the UK will not have to pay these charges in the event of a no-deal Brexit.

By OnlineDIRECT Marketing Team