With memories of price spikes that occurred last winter still fresh, UK energy traders have moved to guard against a repeat this year, the ICIS Power Index for Q3 2017 shows. But, despite the concerns over tight supply, there are signs the UK energy system is ready for the onset of high demand.
London, UK, 11th October 2017 – An increasing risk of disruption to nuclear power output in France contributed to a sharp increase in wholesale electricity and gas prices in the UK throughout August and the first half of September.
This, combined with rising global fuel markets, threatened to push UK wholesale energy prices to a new high for 2017 in the third quarter.
But a late reversal saw prices retreat with winter looming. In mid-September, having spiked above £48.00/MWh for the first time since January, the ICIS Power Index (IPI) declined, signalling that the UK is better equipped to deal with any price spikes which might emerge in France this winter.
The IPI was £44.98 per megawatt hour (MWh) on average over Q3 2017, up 5.3% quarter on quarter. The average price of gas to be delivered over the next calendar year rose 2.9%.
“Last winter, UK energy prices spiked to record highs because of unexpected nuclear power disruption in France. This year, the risk of a repeat performance has steadily increased, and UK markets have been pricing in this risk,” said ICIS power markets editor Jamie Stewart.
“UK traders are worried about being ‘caught short’, which could mean having to buy electricity to satisfy delivery obligations at a time when severe price spikes are occurring. So, to mitigate this risk, traders have bought more electricity on the forward market which has itself pushed up prices.”
The price of gas has also risen, not only in the UK but in Western Europe too, partly because more fuel may be needed to run gas-fired power plants in the event of nuclear power plant closures.
Moreover, the UK will enter this winter with a near-total absence of capacity at Rough, the country’s only large-scale natural gas storage site. This means forward prices have had to be sufficiently high to encourage gas to flow from the continent into Britain.
While nuclear power in France was the dominant driver of UK energy prices, a swathe of other, more global drivers also weighed in during Q3. These included high global coal prices driven by a tightening of fundamentals in China, high Asian LNG prices due to a lack of supply on the short-term market, and production controls in the global crude oil market.
But other factors will go some way to countering this risk of higher prices. One such factor, the UK electricity capacity market, is in play for the first time this winter. Under this mechanism a number of power plants must guarantee their availability at times of system stress. This makes harsh, short-term price spikes less likely to occur.
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 volume.
ICIS is an independent price reporting agency focusing on global energy, petrochemical and fertilizer markets, and we have covered the complex UK electricity market for nearly two decades. Every day, we assess electricity contracts for more than 40 different delivery periods in the UK market alone. The analysis and data that we produce is widely used as a reference price in energy contracts.
It is our aim to give companies in global commodities markets a competitive advantage by delivering trusted pricing data, high-value news, analytics tools and independent consulting, enabling our customers to make better-informed trading and planning decisions.
With a global staff of more than 530, ICIS has employees based in Houston, New York, London, Karlsruhe, Milan, Mumbai, Singapore, Guangzhou, Beijing, Shanghai, Tokyo and Perth. ICIS is a division of Reed Business Information, part of RELX Group.
About Reed Business Information
Reed Business Information provides information, analytics and data to business professionals worldwide. Our strong global products and services hold market-leading positions across a wide range of industry sectors including banking, petrochemicals and aviation where we help customers make key strategic decisions every day.RBI is part of RELX Group, a world-leading provider of information and analytics for professional customers across industries. http://www.reedbusiness.com
About Reed Elsevier
RELX Group is a world‐leading provider of information and analytics for professional and business customers across industries. The group serves customers in more than 180 countries and has offices in about 40 countries. It employs approximately 30,000 people of whom half are in North America. RELX PLC is a London listed holding company which owns 52.9% of RELX Group. RELX NV is an Amsterdam listed holding company which owns 47.1% of RELX Group. The shares are traded on the London, Amsterdam and New York Stock Exchanges using the following ticker symbols: London: REL; Amsterdam: REN; New York: RELX and RENX. The total market capitalisation is approximately 33.5bn GBP / 37.4bn Euro / 44.1bn USD. www.relx.com
Jamie Stewart, power markets editor, ICIS
Direct: +44 (0) 207 911 1933
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