WHOLESALE PRICES ARE AT A RECORD LOW
LEAP INTO ACTION NOW
A Unique Perspective
energyquote.com
A Unique Perspective | Wholesale prices are at an all time low - leap into action now
Energy buyers should renew their energy contracts now as wholesale costs have fallen significantly
Fixing forward contracts right now Prices across the wholesale energy complex have fallen significantly during the last year, which is ultimately good news for energy consumers. We recommend that energy buyers renew their electricity and gas contracts now in order to take advantage of the low wholesale market conditions. EnergyQuote JHA is Europe’s largest provider of energy intelligence to the industrial and commercial sector.
Non-energy costs are becoming a more significant part of overall bills
Our Market Analytics and Publications service provides unparalleled insight on current and future market developments. We go beyond simply tracking price movements, with a unique approach that answers the ‘so what?’ questions in energy markets, as well as the ‘what?’ and the ‘why?’ This unique perspective on ‘fixing forward contracts right now’ provides valuable information on the wholesale energy market and considers the other cost elements of consumer bills and how these are becoming a more significant part of overall costs. Your Relationship Manager can also provide you with further information.
EnergyQuote JHA, 66 Hammersmith Road, London W14 8UD United Kingdom. T: +44 (0)20 7605 2300 E: enquiries@energyquote.com
A Unique Perspective | Wholesale prices are at an all time low - leap into action now
Wholesale prices drop to record lows This year forward gas and power contracts on the wholesale market have fallen once again, recently touching historic lows. Prices have been driven lower by a weakening in supply/ demand fundamentals across the wider energy complex, with oil and coal shedding value.
Wholesale gas and power prices are at relative lows
Early this year a brief cold spell supported prices for a time. The onset of summer saw demand fall, which coupled with healthy supplies saw prices ease. The tail-end of the maintenance period coincided with a further softening in the oil market helping to send forward prices even lower. Since the elevated prices in early February, forward annualised gas and power prices have fallen by around 18% and 11% respectively. While coal prices have also fallen to record lows, reform to the carbon market has provided some recent support to power. Forward annualised wholesale energy price development 62
The forward annualised energy contracts have fallen around 11-18% since February
Power (£/MWh) and gas (ppt)
60 58 56 54 52
Power
50
Gas
48 46 44 42 40 38 Apr May 14 14
Jun 14
Jul Aug Sep 14 14 14
Oct Nov Dec Jan Feb Mar Apr May Jun Jul Aug Sep Oct 14 14 14 15 15 15 15 15 15 15 15 15 15
energyquote.com
A Unique Perspective | Wholesale prices are at an all time low - leap into action now
‌but non-energy costs continue to increase
Non-energy costs will make up a larger proportion of the total bill
While wholesale energy costs have been falling, the same cannot be said for the additional costs consumers face for the likes of transmission and distribution, as well as the costs associated with subsidising renewable generation. As a result non-energy costs will make up a larger proportion of the total bill, rising to around a half in 2016/17. Power non-energy cost comparison 1%
45
6%
40
Investment in transmission and distribution networks will continue
ÂŁ/MWh
35
1% 6%
30
0%
25
16%
7% 0.5%
2% +14% 19%
19% +10%
Other charges CCL
20
Contracts for difference
15
Transmission & Distribution
10
Renewables
20%
20%
20%
5 Percentage refers to estimated proportion of total bill
0 2014/15
The government is taking action on renewables subsidies to ensure value for money for consumers
2015/16
2016/17
Investment in transmission and local networks is set to continue in the coming years as the electricity networks are upgraded to take into account new renewable generation. Renewables subsidies account for around a fifth of the total electricity bill at present with costs projected to continue to increase annually. However recent amendments to the renewables policy suggests the government is committed to ensuring value for money for consumers. Under the government’s electricity market reform arrangements new low-carbon generation will in future be supported under the contracts for difference regime. Further budget announcements are pending and there is some uncertainty as to how quickly these costs will escalate in the short to medium term.
energyquote.com
Now is a good time to fix We therefore believe that energy users should consider fixing their gas and electricity contracts straight away in order to take advantage of the relatively low wholesale prices and minimise the upside risk, particularly as the winter period is just around the corner. Any prolonged cold spell could support gas and power prices and we have seen in previous years that this can have a knock-on effect into the following summer, as additional injections are made into storage to replenish depleted stocks in time for the following winter. Supply contracts that fully fix the non-energy cost elements should also be considered in order to provide budget certainty and to minimise the risk of further increases being passed through to end users by suppliers.
Contact your Relationship Manager today in order to find out more about how fixing your gas and electricity contracts beyond 2016 could help your business.
energyquote.com
Š EnergyQuote JHA. All rights reserved. EnergyQuote JHA is a trading name of EQJHA Limited.(Registered No: 09128440). Registered Office: 66 Hammersmith Road, London, England W14 8UD. EQ0373.10.2015