Trump, Trade Wars and OPEC – Prices Ease

Near-term contracts rise, whilst seasonal contracts experience losses. Commodity prices ease, EU ETS carbon drop amid heavy selling.

Last week we saw near-term power and gas contracts increase, while their seasonal counterparts moved lower. Larger price movements were seen further along the curve, thanks to falling commodity prices. Falling costs of EU Emissions Trading Scheme allowances also contributed to this downward pressure, due to a decrease in demand following Trump’s decision to impose steel and aluminium tariffs. Brent crude oil also fell, with production cuts set to be relaxed by OPEC. Outside of the wholesale market, British ministers have agreed to fund a new nuclear plant in Anglesey this month, which could be a fifth cheaper than Hinkley Point. 

 

Oil Underpins Bullish Energy Prices

Oil and carbon prices reach fresh highs pulling gas and power prices higher. Contract For Difference changes will bring additional costs for customers. 

Last week we saw oil and carbon prices reaching fresh new highs while pulling gas and power prices higher. Brent Crude Oil prices have also reached their highest point in nearly four years from the potential impact of new US sanctions on Iranian oil exports. Gas prices will continue to rise due to the extension of an unplanned outage at one of Great Britain’s gas storage sites. Moving away from the wholesale market, the National Audit Office found that Contract For Difference changes will bring additional costs for customers. The changes will prove to benefit smaller projects in the industry. 

 

Commodity Prices Reach Multi-Year Highs, Gas and Power Follow

Oil reaches fresh highs, gas and power prices follow. Innovate UK launch smart energy fund for new business energy models. 

Last week we saw oil and carbon prices reach new multi-year highs with gas and power contracts following suit. The US President Trump’s decision to withdraw from the Iranian nuclear accord was the biggest news last week. There was a rare occurrence on Wednesday as day-ahead peak power contracts were lower than baseload power prices resulting from high levels of solar generation. Moving away from the wholesale market, Tidal Lagoon Power are looking for a 60-year Contract For Difference. The same strike price as Hinkley Point C will be given. 

 

Gas and Power Supplies to Exceed Demand This Summer

National Grid’s Summer Outlook Report expects gas and power supplies to exceed demand this summer. All power, gas and commodity prices rise, with several contracts reaching multi-year highs. 

Last week we saw National Grid publish their Summer Outlook Report for 2018 which showed both gas and power supplies exceeding their demand. Despite all of this, all power, gas and commodities prices rose last week with several contracts reaching new multi-year highs. Moving away from the wholesale market, UK Research and Innovation announced a new fund to develop and test future smart energy systems. There will be up to £41.5mn available at the very first funding opportunity. 

 

T-4 Capacity Market Clears at Lowest Ever Price

The T-4 Capacity Market auction clears at lowest ever price, power and gas prices reach multi-month lows. 

Last week we saw the T-4 Capacity Auction clear at it’s lowest ever price. The auction seeks to ensure security of supply for winter 2021, and provides an outlook of our future generation mix. Gas will make up almost of half of supply when the system is tight, while the lack of coal-capacity agreements may cause more coal-plant closures in the near future. In the wholesale market, all commodity, gas and power prices moved lower. 

 

Gas Prices Drag Power Lower

Power and gas contracts continue to move lower. Brent crude oil reaches a new three-year high. Embedded benefits injunction rejected, Future Energy exits the market. 

Last week showed continuing downward trends in nearly all near-term power and gas contracts. Seasonal power contracts also fell with Winter 18 and Summer 18 contracts dropping to their lowest levels in three months. There had been several disruptions to GB gas supplies towards the end of 2017 which attributed to the fall in power prices. There was also very good news for consumers this week as the High Court decided to reject Ofgem’s injunction application. 

 

Renewables Records Set in 2017, Fresh Highs for Power Prices

2017 sees a host of new records for renewable generation. Near-term prices fall, seasonal contracts hit fresh highs. 

Despite it being the New Year, the energy market continued some of the trends we saw towards the end of 2017: near-term gas and power contracts decreased, while seasonal contracts moved higher. Day-ahead power fell by 8.8% in the last two weeks of the year, while last week, Winter 18 reached its highest price since September 2015. Unrest in Iran meant that Brent Crude oil was the most expensive it’s been since May 2015. 

 

Outages & Incidents Cause Price Spike

Unplanned shutdown of major oil pipeline and other incidents send power and gas contracts shooting upwards. 

It was a very eventful week last week, with a cracked gas pipeline off the North Sea and an explosion at the main gas hub pipeline in Austria. Since the UK transports so much gas through these pipelines, the effects were felt right across the gas and power market. Day-ahead power averaged £63.5/MWh on Tuesday, while day-ahead gas reached a four-year high of 78.0 pence per therm. Outside of the wholesale market, Elexon announced that transmission charges will vary depending on location and season from April onwards. 

 
Wholesale-prices-hit-new-highs

Wholesale Prices Hit New Highs

Gas and commodity prices climb, power follows. Ofgem issues update on its Targeted Charging Review

All power contracts increased last week with commodity prices hitting new multi-year highs. Power for December experienced the biggest gains increasing by 2.9%. Gas and Brent crude oil moved in the same direction, reaching eleven-month to two-year highs! Moving away from wholesale prices, Ofgem released an updated version of their Targeted Charging Review Significant Code Review which assesses new options for how consumers are billed for network charges.

 
bloomberg

Bloomberg’s Energy Highlights

 

How should your company position itself for change in the energy industry?

Bloomberg’s invite-only conferences are a useful indicator of the energy industry’s prevailing mood. Last year’s meeting was an optimistic affair which showed how Europe’s enthusiasm for electric vehicles was beginning to register with providers. This year’s get-together was less upbeat, dominated as it was by concerns about shifts in the generating mix, and their implications for the roles of the utility companies. 

Speaker after speaker at Bloomberg’s New Energy Finance conference offered perspectives and solutions, providing plenty for the alert business customer to chew over. A particularly toothsome morsel concerned the cut-throat competition in the renewables sector. Like most industry junkets, these conferences are wide-ranging but generally polite, so it was a shock to hear Irene Rummelhoff of Statoil use her time at the podium to lambast sections of the wind farm industry. 

“The offshore wind industry needs to be careful,” she said. “If they’re not able to build the projects, it will ruin [their] reputation.”

 

Gamesmanship

Ms. Rummelhoff was referring to initiatives by Energie Baden-Wuerttemberg and Dong Energy, who upset their peers earlier this year by contracting to deliver cheap wind energy to German consumers *without* the support of green taxes, levies or subsidies. Dong has made similar undertakings in relation to new UK ventures, where it promised prices as low as £57.50/MWhr. 

Compare that with the notoriously steep £92.50 strike price agreed for Hinkley Point output! Whatever is going on?

The reason the EnBW and Dong offers ruffled feathers is that some are skeptical these projects will ever become a reality. Allan Baker of Societe Generale blandly dismissed them as “an option on future capacity.” It was left to Francesco Starace of Italy’s Enel SpA to spell out the kind of gamesmanship in which his competitors were indulging. “You need to have a diversified portfolio, you need to be able to say: No, I don’t like this project, I have another three coming,” he commented. “If you only have one project and that project is everything you need for growth, that is not a good thing.” 

In other words, those particular wind farms may not get built… but try not to let it bother you. They’re still having a positive impact.

 

Margin: zero

Sig. Starace’s brisk analysis would fit any situation where businesses compete in the absence of decisive technical or financial advantage. But in the context of the London conference, it’s remarkable… because it demonstrates just how thoroughly renewables have entered the mainstream. The same economies of scale which saw solar panels going head-to-head with gas turbines on price-performance ratio are now having a similar impact on wind energy. The cheapest solar and wind contracts may never be realized, but their collective effect is to drive down prices.

“[It’s] the slowest trainwreck in history,” commented Steven Martin of General Electric, in a separate but closely-related discussion. “We’re going to reach some point where the marginal cost of energy is zero.”

 

All about the base(load)?

Of course, the prospect of a smart grid delivering bountiful free energy is very appealing… provided you *don’t* run a utility company! Mr. Martin and his peers presumably heaved a collective sigh of relief when they realized that the necessary changes to our infrastructure will have to take place in piecemeal fashion, as investment gets diverted from existing forms of generation and distribution.

Indeed, some of Europe’s utilities are likely to enjoy something of a heyday in the immediate future. Bloomberg’s own Jonas Rooze showed why, despite the rapid growth of renewables over the next 15 years, there’ll still be a requirement for fossil fuel ‘despatchables’ like gas turbines. But he also foresaw a breakdown in the prevailing distinction between ‘baseload’ and ‘peaker’ generation. In the near future, local renewables will do the grunt work, with centralized despatchables coming online only when required. That’s a near-inversion of the existing model, and it’s bound to produce winners and losers.

Your business will need new and more flexible energy buying strategies to cope with these conditions… and that’s where we come in. At Planet9 Energy, we help our customers deal with the momentous changes in Europe’s energy markets. Give us a ring to learn more.