UK wholesale energy price decline halts as buyers return to market

18 July, 2017

The ICIS Power Index Q2 2017 analysis shows that three months of UK energy price declines came to an end last quarter. Unusually, gas and power prices decoupled, indicating coal may have a role to play in UK power generation for some time yet which could pave the way for power price spikes

London, UK, 18th July 2017 – UK wholesale energy price declines ran out of steam in Q2 2017 following a solid three months of falls that began at the start of the year. The stabilisation was the result of buyers being drawn back into the market to take advantage of prices having fallen, while pound-euro currency fluctuations also played into the market’s valuations.

The ICIS Power Index (IPI) average over Q2 2017 was £42.732 per megawatt hour (MWh), down 6.5% quarter on quarter, mainly due to the trend of losses running well into the start of Q2. Gas for delivery over the next year was down 6.2%.

Amid the stabilisation, an unusual trend was seen as wholesale gas and electricity prices decoupled with electricity maintaining more of its value than gas, which meant an increase in future profit margins for gas-fired power plants.

This happened because coal plants were called on to meet demand at times early in the summer. This reminded the market that coal-fired power plants will still be required in future to meet consumption, to the extent that they may often act as the ‘price setting’ fuel type. “According to forward markets, the UK’s gas-fired power plants will be cheaper to run in coming years than coal. This means they will be switched on and be more likely to run twenty-four hours a day,” said ICIS power markets editor Jamie Stewart.

“Coal plants will be fired up only when necessary to meet demand. But this does mean the price of electricity at that time will need to reflect the cost of turning on those aging, expensive coal plants. And, with global coal prices at a high for 2017, that could in turn mean large, albeit brief, power price spikes over the months ahead.”

This comes despite coal having been steadily phased out of the UK’s power generation mix to the point that, in April, the country went 24 hours without switching on a coal-fired plant for the first time in 130 years.

The IPI delivers independent insight into the complex world of wholesale power prices for both households and industrial electricity consumers, based on real market trading. The IPI is updated every working day and is freely available from the ICIS website, along with ICIS’ quarterly analysis of price trends and volumes.

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