Wholesale energy costs rose for the fourth consecutive month amidst considerable volatility fuelled by the announcement from Centrica that the Rough gas storage facility would be out of action until Spring 2017. Gas prices gained 2.0% rising to 1.43 p/kWh and electricity followed up 1.7% to 4.33 p/kWh. Coal rose sharply by 10% up to $61.20/tonne but the most significant mover was crude oil which plunged 14.5% down to $42.45/barrel.
The news of the outage at the UK’s largest gas storage facility prompting a ban on gas injections, has precipitated concerns that UK gas storage inventories will be at record lows approaching the 2016-2017 winter period. This caused immediate panic during July but the markets settled a little as prices fell back. Centrica will be carrying out safety checks and the storage facility is not likely to be fully back in action until March or April 2017. A weak pound has impacted negatively on the cost of imported gas pushing prices up and there is now wide anticipation of a UK interest rate fall this week which could put further pressure on the pound.
Electricity prices followed the gas market and once again electricity generated from gas provided the highest source of electricity generation.
Global oil markets reacted to news that OPEC’s production was at the highest level for some months in July, together with growing crude and refined stockpiles in the US and a record month of production from Iran. There now seems to be less optimism for an oil price that can be sustained above $50.00/bbl.
The future of the new Hinkley Point C nuclear power station officially scheduled to go live in 2025, remains hanging in the balance despite the board of EDF Energy giving the project the green light. The new UK government has decided to delay a final decision until autumn.
One of the first acts of the new government was to scrap the Department of Energy and Climate Change, rolling it into the new Department of Business, Energy and Industrial Strategy. This new body will oversee the Capacity Market scheme auction due in January 2017 to secure adequate power generating capacity for the 2017-2018 winter. The impact this will have on consumer bills will only be known once the auction results are published. For customers negotiating new contracts covering this period, great care will need to be taken to ensure clarity on how this potential additional cost is being accounted for by suppliers.