Short-term energy markets continued to tumble in March particularly through the first half of the month as windy conditions and mild temperatures boosted supply and demand plummeted. Prices have continued to drop over the last couple of weeks due to continued unseasonably warm conditions and healthy solar output, however a reduction in wind output limited gains. Day-ahead prices fell beneath £43.5 MWh, close to an 18-month low.
Longer term prices had a slightly more volatile month but ultimately fell on the downtrends in gas and coal prices. Coal dropped below $75/tonne, its lowest level since last March on the back of reduced Chinese buying and economic slowdown fears. While oil markets have had a more bullish month with prices increasing above $67/barrel – a four-month high - which limited losses.
The last weekend of March saw an “unprecedented” shift in demand and supply patterns which sent the UK wholesale power price tumbling into negative pricing for more than six consecutive hours. Lower than forecasted demand and high renewable output, particularly from wind, forced the system operator to reduce output from wind, CCGT and biomass power stations. This is likely to be an increasingly common occurrence as renewable capacity in the UK is set to rise further – see our graph of the month section for more details.
The first half of April is forecast to be windless, with temperatures slightly lower than we have seen of late, which could increase demand for gas, supporting prices but healthy supply levels should limit gains. European gas storage capacity was around 41.5% in the middle of March, compared to 22.5% at the same time last year.