Changes throughout November

  • Brent Crude oil rose 9.2% to average $62.8/bl. On 7th November crude oil hit $64.1/bl, its highest price since July 2015
  • Average Coal prices lifted 3.1% to average $85.1/t in November
  • Carbon prices climbed 4.6% to average €7.6/t. On 6th November EU ETS carbon reached €7.9/t, a five-year high
  • The majority of gas contracts increased in November. Day-ahead gas prices leapt 15.9% to average 52.8p/th, the highest monthly average for 10 months
  • In common with gas, most power contracts increased. Near-term prices were pushed higher by nuclear outages and seasonal contracts were driven higher by gas and increases in other commodities.
  • Day-ahead power rose 10% to average £51.4/MWh, its highest monthly average in 10 months.
  • All seasonal power contracts rose. Summer 18 contracts rose by 3.7% averaging £44.4/MWh, winter 18 rising 3.6% averaging £49.6/MWh

Commodity comparison chart November 2017

Generation Mix

Generation Mix chart November 2017

Gas continues to be the main contributor to the generation mix. Nuclear contribution reduced this month compared to the same month last year by 3% and by 5% compared to October 2017. This is due to the nuclear outages. The outages caused an increase in coal generation and power imports. Wind output accounted for 14% of the generation for November, up from 8% compared to the same month last year. The increase in the use of renewables within the generation mix raises concerns about market volatility.

Forward Trends

Oil

  • On the 30th November, OPEC and non-OPEC members agreed to extend current production cuts until the end of 2018 to tackle global oversupply. Nigeria and Libya will be included in the cap moving forward increasing the number of countries signed up to the agreement. A mid-year review will be undertaken in June to assess the markets and determine whether members can begin to increase supply.
  • The rise in oil prices has resulted in an increase in US oil production. This increase is partially offsetting the upward price pressure caused by the OPEC agreement causing prices to stabilise.

Coal

  • Chinese coal demand is expected to weaken over the winter despite the country approaching their peak demand for heating. The Chinese Government has continued to push forward the replacement of domestic and commercial reliance on coal for heating and power by substituting coal-burning power stations with gas ones and domestic coal heating systems with gas ones. This will reduce China’s requirement for coal for the future but increase the demand for gas potentially significantly increasing the global demand for gas

 

Carbon

  • There are no auctions expected now until the second week in January so major price changes are unlikely with very few allowances being traded.

Gas

  • The increase in demand over the winter period will push prices higher. However, no shortage of supply is expected, so major price spikes are unlikely.
  • LNG continues to be volatile mainly because we are competing for this gas with other European countries and the Asian markets which have seen an increase in demand.
  • Despite the low storage levels, there are no concerns around importing gas to meet the demand over the winter period. GB has the infrastructure to import enough capacity to meet the demand but uncertainty around how much this will cost still remains.

Power

  • Nuclear plant outages are expected to end for the next few weeks so the amount of baseload power available will increase to support the demand over the winter
  • Unscheduled outages could tighten the power prices causing large peaks during this time
  • We are heading into winter with 4GW more of Renewable capacity compared to last year. We also have 1GW of wind capacity commissioned recently and expected to be fully operational by the end of quarter one of 2018. An increase in renewable generation helps reduce the price of power. However, it can cause issues on the system because of the unpredictable nature of the generation increasing price volatility on near-term contracts.

Outlook for Retail Prices and our Recommendations

This report is a guideline to the current energy markets. The market changes daily so we recommend you contact us if you need advice specific to your business needs.

Brexit negotiations continue. The UK and EU continue to discuss the terms of the transition phase before settling on long-term future relationships. The transition phase is expected to continue for a further 18 months to 2 years once the UK exits in March 2019. The European commission’s guidelines state that the UK should continue to follow EU law and stay in the European customs union and single market during this period. Nothing yet has been agreed so the uncertainty around Brexit and how the UK will be affected continues.

The commodity market looks set to remain fairly stable over the winter period. Increases are predicted throughout 2018 but there is little reason to panic. Through 2017 we have seen the commodity markets fluctuate for several reasons that are the result of demand and supply, but geopolitical situations have had little bearing when compared to recent years. Despite the current global oversupply of oil, prices are expected to rise with the agreed OPEC cuts, and the continued rise in Asian demand is adding concern over the cost of delivery of LNG. An increase in demand for gas over the winter period may also continue to push prices higher, that being said supply margins look secure so we are not expecting any sudden spikes in prices.

At the retail level, the prices will continue to be influenced by non-energy costs. These costs can account for anything up to 60% of an electricity bill. As we move into 2018 these costs will continue to rise with the introduction of EII (Energy Intensive industries) Exemptions which will result in further changes in Contract for Difference (CFD), Feed-in-Tariff (FIT) and Renewable Obligation (RO). In April we will also see changes to CCL (Climate Change Levy) for both gas and electricity when the annual increase is applied. Over the coming years, the Government aims to harmonise the CCL rate between Gas and Electricity resulting in significant increases on the cost of gas.

The majority of our clients saw increases in the prices when they signed contracts during 2017 compared to previous contracts. On average customers signed for 19 months meaning that the optimum contract for our clients was one or 2 years, with very few opting for longer term contracts. Some clients who traditionally procured on a flexible basis opted for a fully inclusive and fixed contract to gain budget certainty with prices quoted for this level of certainty showing very little increase in the cost when compared to their contracts over the last two years. Buying energy flexibly also requires a good deal of work to ensure that buying is optimised.

At Power Direct Ltd we started offering energy buying baskets in 2017 to all our clients. The buying baskets did demonstrate that this form of collective buying, where the contracts costs are fixed for the contract period, can drive down prices for many customers. The baskets are most effective for those clients who use between 10 and 300 thousand kWhs of gas and/or electricity. The baskets also showed savings for much bigger consumers but as a percentage of their overall spend, this was smaller.

The energy baskets have been a success throughout 2017 and will be something we will continue to offer. Power Direct will complete another buying basket in March 2018. The basket is available for all clients, new and old, who are currently in a contract with an end date up to and including March 2019. If you are interested in receiving further information or have any questions please contact our energy experts on the below number.

Regardless of your contract status, we would recommend considering your options now. The energy markets will continue to remain uncertain throughout 2018 with changes in legislation, commodity markets and non-energy costs all having an effect on the price of energy. Our experts will discuss the options with you at renewal to ensure the decision made is in your best interest.

For further information on anything in this report or to join our next gas or electricity basket please contact our team on 01452 347549.

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