october HEADLINES
  • UK energy prices ticked downwards throughout October, largely driven by falls in both oil and carbon markets. Changeable weather conditions kept short term prices fairly volatile
  • Oil markets fell from multi-year highs of $85 per barrel at the start of the month to just below $76 per barrel, as concern grew over global oil supply outweighing demand
  • Carbon markets dropped 25% below where they were a month ago. This was the main driver for the drop in export markets and meant securing PPA’s became less attractive
  • Large and medium sized firms are paying the highest power prices in EU according to government figures which stresses the increased need for businesses to have an energy strategy in place to manage the risks associated with rising energy costs

Industry News

A sharp drop in oil and carbon emission markets pressured long term gas and electricity prices downwards this month. Carbon markets had been steadily declining (after the highs witnessed in September), on the back of the growing uncertainty surrounding Brexit and the future of the UK in the EU ETS. These concerns were confounded in the Autumn Budget where the Government announced that in a ‘no deal’ Brexit scenario there would be a new carbon tax to replace the EU ETS. The uncertainty resulted in a sharp drop over the October period of nearly €10 per tonne.

Short term gas prices were fairly volatile through the month due to changeable weather conditions, however, generally the UK gas system remained oversupplied and prices dipped as a result. Temperatures were largely above seasonal norms across the continent, leading to decreased demand and allowing for increased injections into gas storage, which reduced the level of risk built into Winter 18/19 power prices. This drop filtered through to UK short term power prices which were pressured down further by strong wind generation resulting in improved supply levels.

The outlook on energy prices, as we head into Winter, is fairly mixed. The key driver for long term prices during November is likely to be the US oil export sanction on Iran which could provide some support back to oil markets. Meanwhile, short term prices are likely to find direction from any extreme weather conditions both in the UK and across the continent.

  • The Welsh government announced it is making an extra £2 million available to fund the establishment of an electric vehicle charging network throughout the country
  • Cuadrilla controversially restarted fracking at a shale gas well near Blackpool this month. However, explorations have already been halted following several tremors in the surrounding area
  • Scottish Power sold their £702m generation portfolio to Drax in a bold move to focus on wind power. The energy supplier plans to invest £5.2bn over the next four years to more than double its renewables capacity
  • Energy industry leaders reacted to the Autumn Budget as failing to provide clarity on a number of key issues facing the sector. The move to freeze the Carbon Price was also met with fears that it could see coal playing a greater role in the UK’s energy mix

 

The latest ‘Graph of the Month’ shows the recent trend of Brent crude oil price which suffered its biggest monthly fall since mid-2016 during October.

Oil markets had been trending upwards in recent months as concerns over tightening global supplies dominated price movements, particularly ahead of US sanctions against Iranian oil exports which comes into force on the 5th November. However, despite previous concerns that this will tighten supplies further, oil prices plummeted 7% from multi-year highs.

Rising US oil stocks and reports that some Iranian exports will keep flowing, even after the US sanctions come into force, resulted in a shift in the global oil supply outlook to that of oversupply. Meanwhile, falling global stock markets dampened oil demand forecasts as concerns grew over a worldwide economic slowdown. These drivers combined to pressure oil markets downwards.

That said, oil markets remain highly volatile and the effect of the Iranian sanctions may yet play a part in dictating price movements over the coming months even with Russia and Saudi Arabia indicating that they will increase production to meet demand… watch this space.

Gas and Electricity Brokerage – A dip in import gas and electricity prices means that anyone with contracts renewing over the Winter 18/19 period (Nov – April) should be looking at re-contracting now as prices tend to increase the deeper we get into the chilly season due to increased demand

Battery Storage Opportunities – The market for behind the meter battery storage and Demand Side Response (DSR) is evolving quickly. The guaranteed income streams are becoming more uncertain, however, the possibility of tying in batteries with Solar PV is making the financial model more favourable, particularly for energy intensive businesses

Large Scale Solar – After a few years of demand for solar slowing, the market is potentially set for a comeback as technology costs decline, which means landowners or businesses with on-site electricity usage should act now to secure rental agreements and grid connections. The Feed-in Tariff is also due to close at the end of March 2019, which is an additional incentive to act quickly

Electric Vehicle Charging Points – The number of electric vehicles entering the UK market is forecast to soar over the next decade and we need to ensure the infrastructure is in place to cope with the demand. Carter Jonas are working with developers and investors - targeting sites along the major road networks and areas with large footfall and dwell time.  Contact us now if you feel you have a suitable site

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@ Helen Melling
Helen Melling
Senior Energy Specialist
0113 426 9868 email me about Helen
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Helen is a Senior Energy Specialist based in our Leeds office.

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