Energy Market Review – March 2019
Energy Market Headlines
Wholesale prices last month
All wholesale power and gas contracts fell further in March as gas supplies remained comfortable and above seasonal normal temperatures eased energy demand. All seasonal power prices dropped in February, falling 4.4% on average, with summer ’19 power down 8.1% to average £45.7/MWh. All seasonal gas contracts decreased in March, dropping 7.8% on average, despite a 4.0% increase in Brent crude oil prices. Summer ’19 gas declined 13.2% to average 39.9p/th.
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 gas supply outlook. This will provide further pressure to gas contracts, both in the near and longer-term. However, oil prices could provide some upside as ongoing OPEC+ production cuts support Brent crude prices, which may feed into the GB energy markets.
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 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. Government also 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, which would account for ~£8/MWh of wholesale power prices.
All seasonal baseload power contracts decreased in March, down 4.4% on average. Summer 19 power averaged £45.7/MWh, down 8.1% from February, with the contract
dropping to a one-year low of £42.8/MWh on 29 March. As gasfired power generation continues to dominate our electricity mix, seasonal baseload power contracts have been pressured by falling gas prices. Day-ahead power prices also followed their gas counterparts lower, as CCGT generation remained dominant in the supply mix, providing 39.2% of the generation mix in March. Prices were also pressured from high levels of wind generation, which accounted for 20.6% of the generation mix and acts to push more expensive forms of generation out of the electricity mix.
As gas prices are expected to continue to fall in April, baseload power prices are likely to follow amid forecasts of warmer weather and comfortable gas and power supplies.
All seasonal gas contracts fell in March, decreasing 7.8% on average. Summer 19 gas saw the biggest change, falling 13.2% to average 39.9p/th. The contract went down to 35.5p/th on 29 March, its lowest price since June 2016. Winter 19 gas was 8.7% lower, averaging 53.5p/th, and dropped to an 11-month low of 50.3p/th on 26 March. A total of 15 LNG tankers arrived at UK terminals last month, continuing to ensure gas supplies remained comfortable while above seasonal normal temperatures dampened gas demand. Comfortable gas storage levels across Europe also helped to prevent any price rises during the month.
Although a dip in temperatures is expected early in April, temperatures are forecast above seasonal normal levels for the remainder of the month. The gas system is therefore expected to remain comfortable throughout the month as demand falls and the system is well supplied following the scheduled arrival of at least 12 LNG tankers, which is displacing gas interconnector imports from Europe. This will pressure both gas and power contracts in April.
Brent crude oil prices rose for the third consecutive month, up 4.1% to average $66.9/bl in March. Production cuts from OPEC+ have provided support to prices
this year, as sanctions on Venezuela and Iran have also acted to reduce global oil supplies. Tighter supplies have offset pressure from rising US crude production and calls from US President Trump for OPEC to raise output to stop prices rising.
API 2 coal prices experienced a third consecutive monthly decline, down 3.7% to average $75.7/t in March. Coal prices have fallen amid weak demand in the Northern Hemisphere, as both Europe and Asia faced temperatures well above seasonal normal levels.
EU ETS carbon prices reversed the previous month’s decline, rising 4.5% to average €22.0/t. Prices rose above €23.0/t on 8 March; however, traders suggested the recovery was unsustainable as temperatures remained above seasonal normal levels across Europe and low gas prices were pushing coal-fired power plant out of the generation mix.
Third Party Charges & Industry Updates
Supplier tariff movements
In February, 13 suppliers moved up price bandings with their cheapest dual fuel products, compared to six suppliers in January. This is the first time that Outfox the Market has not had the cheapest or one of the cheapest tariffs in the market following an increase of £66/year due to the removal of its Zapp! Tariff. 11 suppliers moved down one or more price bandings, of which First Utility reduced its cheapest tariff prices by £85/year to below £1,000/year on average. This is the first time since December 2016 that its tariff has been among the cheapest 10 suppliers. 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.
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 ~£8-9/MWh of the wholesale power price.
Renewable generation hits record high of 33.3% 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, and this trend is expected to be more prevalent in the future with more renewables capacity online.
BEIS launches SME energy efficiency competition
BEIS has launched a small and medium-sized (SMEs) businesses energy efficiency competition. Launched on 13March, the Boosting Access for SMEs to Energy Efficiency (BASEE) Competition offers up to £6 million for innovative solutions that reduce transaction costs and encourage the take up of energy efficiency by SMEs in the
commercial and industrial sectors. The competition is part of the government’s Clean Growth Strategy target of improving business energy efficiency by 20% by 2030. The closing date for applications is 8 May 2019.