Energy Market Review – April 2019
Energy Market Headlines
Wholesale prices last month
Wholesale power and gas contracts experienced mixed movements in April. Near-term power and gas contracts, including day-ahead and month-ahead contracts, were down, whilst all seasonal contracts rose month-on-month. On average, seasonal power and gas contracts were up 4.6% and 6.0% respectively in April. Gas prices were supported by another rise in Brent crude oil prices, which also fed through into power contracts.
Cooler temperatures are forecast early in May but are expected to rise above seasonal normal levels towards the middle of the month. Gas demand is therefore likely to be higher early in the month, which could push prices higher. However, gas supplies will remain comfortable as several LNG tankers are scheduled to arrive early in the month, and UK gas stocks are comfortable, which should cap upwards price movements. Support for wholesale prices could come from a recovery in oil if OPEC decides to extend production cuts beyond June.
Third party charges and industry updates
GB has set a new record of 193 consecutive no-coal hours between 1-9 May, surpassing the previous record of 90 hours and 45 minutes, which had been set in April over Easter weekend. On 23 April, Energy and Clean Growth Minister Claire Perry said she is confident that the UK will meet the fourth and fifth carbon budgets. Under the budgets, government is committed to reducing carbon emissions to 51% and 57% below 1990 levels by 2025 and 2030, respectively.
All seasonal baseload power contracts rose in April, up 6.0% on average. Winter 19 power averaged £58.8/MWh, a 5.9% increase from March. Seasonal power contracts have been supported by a recovery in seasonal gas contracts, as gas-fired power generation continues to dominate our electricity mix.
Day-ahead power fell 2.8% to average £43.7/MWh in April, its fourth consecutive monthly decline. Day-ahead power prices continued to follow their gas counterparts lower, as CCGT generation remained dominant in the supply mix, providing 45.2% of the generation mix in April, up from 39.2% in March.
Power prices are expected to mirror their gas counterparts, whilst lower temperatures may increase power demand above seasonal levels. Low wind output in early May will provide support to prices, however the power system will be comfortable as CCGT generation continues to account for the majority of generation.
All seasonal gas contracts rose in April, increasing 4.6% on average. Winter 19 gas saw the biggest change, gaining 5.1% to average 56.2p/th. Summer 20 gas was 4.9% higher, averaging 46.5p/th in April, a 17.3% increase from the same time last year when it was 39.6p/th. A total of 19 LNG tankers arrived at UK terminals last month, continuing to ensure gas supplies remained comfortable while above seasonal normal temperatures dampened gas demand at times. Comfortable gas storage levels across Europe also helped to prevent any price rises during the month, with inventories in NW Europe at five-year highs.
Temperatures are forecast below seasonal normal levels through May. Although this is expected to see above seasonal gas demand, the gas system is expected to remain comfortable as 11 LNG tankers are already scheduled to arrive at GB terminals before 20 May. Additionally, the volume of gas held in GB storage sites at the start of May was twice as high compared to May 2018.
Brent crude oil prices continued to recover in April, up for a fourth consecutive month. Prices rose 6.8% to average $71.5/bl, peaking at $75.5/bl on 25 April. Ongoing OPEC+ production cuts have been the key driver in the rise of Brent crude oil prices this year, with support also coming from US sanctions against Iran and Venezuela.
API 2 coal prices dropped for a fourth consecutive month, down 3.7% to average $72.9/t in April. Coal prices continue to find pressure from weaker demand amid above seasonal normal temperatures and cheaper gas prices across Europe.
EU ETS carbon rose for the second consecutive month, lifting 16.4% to average €25.6/t. Carbon prices rose to €27.9/t on 12 April, a near 11-year high. Prices found support from the approaching compliance deadline on 30 April, which was the last occasion for companies to hand in EUAs to account for emissions in 2018. This drove prices higher as total auction volumes halved in the week leading up to Easter.
Third Party Charges & Industry Updates
Supplier tariff movements
In March, 17 suppliers reduced the price of their cheapest tariffs. The cheapest short term (<18 months) fixed tariff available in March was from Yorkshire Energy priced at £931/year. Tonik Energy offered the cheapest medium (18 – 35 months) fixed tariff priced at £979/year. The cheapest variable tariff was priced at £892/year from Outfox the Market. Utility Warehouse was the only supplier to increase its cheapest available tariff to the level of the new default tariff cap of £1,254/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.
Review of microbusiness retail market launched
Ofgem launched its strategic review of the microbusiness retail market on Friday 3 May. Ofgem said that it had concerns that the market is not working as well as it should for microbusinesses, with a wide variety of contracts and lack of accessible price information hampering customer engagement. A vision for a positive microbusiness customer journey was set out and Ofgem is seeking inputs on the model and the issues that currently face customers at each stage of the journey. Following the analysis of responses and other evidence, Ofgem will set out its updated position and next steps in winter. Responses are requested until 21 June.
71% of businesses have an energy strategy in 2019, reveals PwC and Energy UK
A B2B survey by PwC and Energy UK has found that 71% of businesses now have an energy strategy, up from 65% in 2017, with 53% of business energy strategies including energy efficiency targets. Published on Monday 29 April (and two years on from a previous survey), it also found that 46% of commercial and industrial businesses are investing in renewable generation technologies. Surveying 500 businesses, from the smallest energy consumers up to the largest industrial manufacturers across the UK, PwC found that 25% of industrial and commercial customers switched energy supplier to capitalise on innovative products or hardware in 2019.
UK sets new no-coal record
For eight days, 1 hour and 25 minutes, from 1:30pm on 1 May, GB had no coal-fired power plant contributing to the generation mix. This set a new no-coal hour record of 193 consecutive no-coal hours, surpassing previous records of 90 hours 45 minutes, achieved in March over the Easter break, and 76 hours and 10 minutes which was reached in April 2018.
This new coal-record, in combination with additional no-coal hours towards the end of last week, puts May’s total no-coal hours to-date (10 May) at 216 hours, which is more than total no-coal hours from the whole of 2016. To-date, the total for 2019 is 1,127 no-coal hours, meaning that for roughly a third of the year there has been no coal-fired power generation. To put this into perspective, this time last year GB had only achieved 409 no-coal hours.
This growing trend has resulted in a revision of forecast coal capacity in BEIS’s recently published Updated Energy and Emissions Projections 2018. BEIS now expects coal capacity to be zero by 2023, whereas last year it was predicting that there would be 1GW until 2025