Market Watch 1

It’s almost Spring, and as the warmer weather comes in, the idea of energy management starts to fade into the background for many businesses. Brighter evenings means we’re not relying on lights so much, and as the mercury starts to rise, the heating for your office, school or factory is needed less. Your energy bills should reflect that change. For the energy-conscious business, however, that is not nearly enough. There are still ways to be saving energy. Look out for a blog post coming soon detailing how. Scroll down you’ll see an equally crucial part of energy management. DB Group analyse the prices and use it to secure businesses the best rates possible. From this Market Watch, take a look and find out just how much can affect how much we pay for energy.


Windy weather, and an end of the cold snaps that characterised the start of the year, has helped push power and gas prices down in the UK and across Europe over the last fortnight, as supply has been strong in the face of falling demand. Day-ahead, Month-ahead and Year-ahead UK Baseload prices have all tumbled and converged below £45/MWh. An improving gas supply outlook also contributed.
Wind power accounted for more than 20% of UK supply in the last week of February, helped by Storm Doris. This, alongside a sharp increase in power imports, pulled Day-ahead prices down from £49.5/MWh mid-February to a general trading range of £45-46.5/MWh, and briefly below £43.5/MWh – their lowest level since December.

Annual UK power prices, meanwhile, arced higher as the second half of February got underway – April ’17 Annual rising from just above £45/MWh to just below £46/MWh – on the back of stronger coal, gas and oil markets, only to be dragged lower as February ended and March began and global energy markets shifted lower. April ’17 Annual slipped to £44.5/MWh and October ’17 Annual to £43/MWh, both two-and-a-half-month lows.

The initial coal market gains came amid reports that the Chinese government was looking at reintroducing output restrictions at coal mines that it lifted in November. Year-ahead coal bounded higher by almost 7%, reaching $69/tonne – although it has since chipped lower, to $67 /tonne, on the back of reduced European coal use and buying interest.

Oil prices meanwhile rose from just over $55/barrel to $57/barrel as promised OPEC cutbacks were confirmed, although they were knocked lower again as US oil output reached a 12-month high and as the dollar strengthened.

The market for EUAs (European emissions allowances that generators factor into costs) saw prices spike almost 14% higher in a single day as March started, after EU environment ministers agreed they should work towards further reform and tightening of the European Emissions Trading Scheme, including cancelling more surplus allowances. Although the suggested reforms are for Phase 4 of the scheme (2021-2028), they still had a psychological impact on the market, triggering the sudden rally – which exhausted itself a day later as prices shed half of the value they had gained.

It was a similar weather story on the continent as in the UK, with wind power production in Germany reaching a record weekly output for any type of generation there – of 4.3 TWh – oversupply pushing short-term prices briefly negative. However, it was a different story on longer term prices, with 2018 German power values rising slightly and French power prices holding broadly stable, both much less influenced by the gas market bearishness than the UK.


⬆  The summer outage season could be particularly heavy this year, some analysts say, as plants that have committed to have capacity available next winter under the Capacity Market scheme, take plant offline for preparatory maintenance.

➡  Government policy has made energy prices more expensive than they should be, a report by the House of Lords Economic Affairs Committee has concluded. “Poorly designed government
interventions, in pursuit of the decarbonisation of electricity generation, have put unnecessary pressure on the electricity supply and left consumers paying too high a price,” it said.

⬇  March is expected to be a windy month. Significant, but sporadic rainfall is also anticipated. While there is a chance of further cold spells, overall there is no signal in the large-scale circulation to suggest temperatures will move much away from seasonal norms, or for long,” says the meteorological desk.


UK gas prices, across all periods, have slipped to their lowest levels since mid-December in the face of good physical supplies and increasing supply confidence for the remainder of the winter, amid forecasts that March will be windy, but not cold, and signs of a pick­up in LNG deliveries.

April ’17 Annual and October ’17 Annual, despite bucking slightly higher on the back of a small run-up in crude oil prices as the second half of February started, are now down 5% and 3% respectively on their levels a fortnight ago – both now discussed around 44.5 p/th.

Part of the pressure has come from the oil market easing back, as US oil output increases again offset OPEC production cutbacks, but much has also come from the influence of the short-term UK gas market softening. As a result April ’17 Annual has been the most pressured, with its premiums to the other Annuals shrinking (its premium to the furthest talked annual – October ’22 Annual – for example, halving over the course of February, to 2.5 p/th).

Day-ahead UK gas prices have dropped almost 12% over the last two weeks, from 49 p/th to 43 p/th. Despite unplanned outages at two significant Norwegian fields, Troll and Kvitebj!1lrn, and a further decrease in interconnector imports into the UK, the resolution of other outages and relatively trouble-free production in the UK offshore have kept supplies strong, while demand has dwindled in the face of milder temperatures reducing end-user consumption and windier weather boosting wind farm output and cutting power sector buying interest.

The arrival of two LNG cargoes has also boosted the amount of gas being sent out into the network from LNG terminals, with expectations of an increase in LNG shipments arriving in the UK and northwest Europe in March, alongside the weather forecasts, weighing on prices over the next couple of months. March went off the board at 44 p/th (having tumbled 25% since the start of February) while April has slid from 47 p/th to 43 p/th over the last fortnight.

Imports through the main (Belgium-UK) interconnector dropped to zero as the second half of February got underway and the pipeline has since been flitting between negligible imports and exports (this is the first time the pipe has changed direction since mid-November). Imports through the Holland-UK interconnector meanwhile dropped by two-thirds (notwithstanding a temporary surge in volumes at the start of the fourth week of February).

While there have been further disruptions to withdrawals from the UK’s largest storage site, Rough, and also a curtailment of gas injection and withdrawal services at the Hole House onshore storage site, there has been no further news as to if and when injections will restart at Rough, which has continued to weigh on discussion across the summer months.

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