Falling Oil Prices Pull Down Gas & Electricity Prices
Falling Oil Prices Pull Down Gas & Electricity Prices
Oil prices dropped month-on-month as the US government shut-down caused concerns in the market that energy demand in the world's largest oil consumer would fall. Market uncertainty helped drive the price down, as the closure prevented the publication of government data on stock levels. Month-ahead Brent crude oil fell 1.8% to a monthly average of $109.3/bl. The price of crude slipped further to a two-month low of $106.8/bl on 25 October after talks between the international community and Iran over the latter's nuclear programme showed progress.
Gas is historically prices at a discount to oil, and so the fall in oil contracts fed through into gas. The benchmark annual gas contract fell 0.9% to a monthly average of 66.5p/th with lower demand due to milder temperatures. High supplies and a rise in storage levels helped pull the contract down.
UK electricity comprises a significant proportion of gas-fired generation, so the trends in oil and gas were also seen in power. The annual April 13 baseload power fell 0.4% to 65.3/MWh in October. Coal is another key fuel for power generation. The prospect of accelerated closures in US coal-fired power stations will potentially increase the number of exports to the EU. In October these fears of oversupply brought down the price of coal by 1.6% to $82.9/t.
Annual EU ETS carbon rose to 5.3/t mid-October after an announcement that the EU will vote on carbon backloading in December. Despite this, carbon prices fell 5% to a monthly average of 5.0/t in October.
November 2013 Crude Oil and Annual Wholesale Gas and Electricity prices
Milder temperatures reduce demand
Temperatures in October were above the seasonal average resulting in a fall in energy demand. But the falling temperatures also saw an increase in gas storage injections. Rough storage is now 93% full, compared to 99% last year.
Despite the increased demand from storage, the cost of gas fell over the month. This fed through into power "alongside strong wind and nuclear output" reducing the day-ahead electricity contract by 1.5% to average 48.5/MWh in October.
November 2013 Spot Electricity Prices
As temperatures fall over the next few months, prices are expected to rise as demand for space heating increases. Gas storage remains lower than last year and could lead to a rise in energy prices if temperatures fall quickly or remain low for a significant period of time.
A reduction in capacity will reduce the supply of power to the UK and could increase prices. GDF SUEZ is planning to demolish the 1,900MW Teesside gas-fired power station as the site is no longer economical to run owing to high gas prices. This site used to provide 3% of UK power supply. It had been mothballed in the hope of bringing it back online once market conditions improved but GDF SUEZ has said this move would be inefficient. Gas power stations are currently providing 33.5% of UK electricity supply.
November 2013 Annual Wholesale Gas Prices
Longer-term gas prices followed the fall in oil contracts in October. Scheduled maintenance at a Norwegian gas field was also reduced, resulting in higher seasonal supplies. Monthly average annual April 13 gas was down 0.9% to 66.7p/th in October, 3% lower than the average for October 2012 and 0.4% lower than the 2012 average of 66.7p/th.
November 2013 Spot Gas Prices
Milder temperatures and plentiful supplies from Norway resulted in a decrease in short-term gas contracts. Day-ahead gas prices dropped 0.4% to average 65.3p/th in October compared to 65.6p/th in September. The day-ahead gas contract was 3% higher than the average for September 2012.
November 2013 Annual Electricity Prices
Longer-term power prices followed the decrease in gas, oil, coal and carbon prices. Coal and gas are the primary generation fuels on the electricity system and changes in their prices have a significant impact on power prices. Monthly average annual April 13 power was down 0.7% to ?52.1/MWh in October, 4% lower than the average for October 2012 and 0.4% lower than the 2012 average.
November 2013 Spot Electricity Prices
Warmer than expected temperatures resulted in lower demand for electricity in October. Strong wind and nuclear output also helped pull short-term prices down. Month-on-month the day-ahead power contract fell 1.5% to average 48.5/MWh in October. The contract is now 11% higher than the 2012 average of 43.7/MWh.
November 2013 Key Energy Market Price Indicators
Supplier switching to be shortened to 24 hours: Davey
Energy and climate change secretary Ed Davey has confirmed his desire to reduce the time it takes to switch energy suppliers from a "completely ludicrous" five weeks to an "ambitious" 24 hours. His comments came during the announcement of this year's Annual Energy Statement on 31 October.
Faster switching without higher cost
Davey said consumers needed to be put "in control" of their bills and his speech outlined a package of measures that would "force" greater competition among energy suppliers. Davey recognised achieving 24 hour switching would not immediately be possible, but he assured companies would not be allowed to increase charges to consumers to cover the costs associated with speeding up the process. Davey urged all suppliers to meet with him so an agreement and a delivery plan can be reached.
The announcement was welcomed by suppliers. British Gas said 24-hour switching would "encourage more customers to engage with Britain's competitive energy market", and EDF Energy promised to work with the government and the regulator Ofgem on achieving 24-hour switching. Davey praised First Utility for already campaigning for an improved switching process and noted that many suppliers had expressed a desire to be involved. Those suppliers who "drag their heels" will be compelled to get involved as the government is "prepared to take action", Davey added.
Market to get a "health check"
The energy secretary also used the announcement to provide more information on a Competition Review into the general "health" and competitiveness of the energy supply market. The Review will be led by Ofgem, with support from the Competition and Market Authority and the Office of Fair Trading. Ofgem has been tasked with designing the Review, but it must cover: consumer engagement; profits and prices; and barriers to entrant for new suppliers.
Davey said energy companies should know any wrongdoing will be uncovered and dealt with, and if abuses are found they must be addressed. The first report under the annual Competition Review process is due in spring 2014.
Further, it was confirmed that any company found to be "manipulating" the market would be subject to criminal sanctions.
Financial reporting to become more transparent
Following the announcement to parliament, Ofgem issued a consultation into improving the transparency of energy company profits. The document sets out the work the regulator has taken so far to improve the available information on company profits, including requiring annual statements from the Big Six. It is seeking views on a range of measures in which energy companies could improve transparency, including: companies publishing more information about their trading activities; an estimated return of capital employed; undertaking taking a review of the transfer pricing methodologies used; and improving the format and content of Ofgem's annual summary of the company statements.
Following the consultation Ofgem expects to see the companies completing full financial audits of their annual statements, which would be published earlier. Ofgem notes that increased transparency will involve costs, which will ultimately be passed through to customers? bills.
Responses are requested by 6 December.
It is good for consumers to see that suppliers are willing to actively engage in speeding up the switching process.
Suppliers face the music on recent price rises
Executives from the Big Six, Ovo Energy and Co-operative Energy have appeared before a parliamentary committee to justify their recent price rises. The session on 29 October was in response to four of the Big Six suppliers putting up their variable tariff prices in October by an average of 9%.
"Scrap green levies"
The suppliers primarily blamed increases in third party charges (that is, the costs in addition to the wholesale cost of energy, such as green levies) for pushing up the costs to consumers. SSE, whose prices are rising on average 8.2%, said wholesale costs were 4% higher than last year, while regulated network charges (for getting electricity and gas around the country) were up 10%. SSE placed the cost of renewables and efficiency schemes 13% higher than last year, and they now make up 10% of the domestic bill.
RWE npower said it was putting prices up because of "external cost pressures". It had seen a 3% increase in wholesale costs, 10% on regulated costs and 31% on policy and regulation. The largest driver of policy costs was the Energy Companies Obligation (ECO), which the company called an "uncapped cost".
E.ON UK said green levies on bills were a 'stealth poll tax" and should be moved into general taxation.
The companies all gave assurances that if green levies were moved into general taxation the cost would come straight off customers bills.
Suppliers on different pages
But independent supplier Ovo Energy said the wholesale prices paid by the company were falling. The company couldn't explain price rises from the other companies. Ovo Energy said if the Big Six charged similar prices to it consumers would save 3.7bn a year.
Despite two lengthy sessions, MPs were unable to garner any insightful information from those suppliers present. This reinforces the need for greater transparency around how bills are set.
Ofgem to gain powers to target rogue brokers
The energy regulator is seeking powers that will allow it to act against Third Party Intermediaries (TPIs) who mislead non-domestic customers.
TPIs are organisations or individuals that give energy-related advice or help companies to procure energy or manage their energy needs.
Concerns have been raised that TPIs operating in the non-domestic market are not subject to sector-specific regulation.
At present the energy regulator Ofgem does not license TPIs. Instead, these companies have to follow general consumer protection rules, including those that relate to business customers, such as the Business Protection from Misleading Marketing Regulations (BPRs) 2008, which prohibits misleading advertising to businesses. The regulations are currently enforced by the Office of Fair Trading (OFT) and Trading Standards.
However, Ofgem is concerned that the OFT and Trading Standards may not view energy as a priority as these bodies have economy-wide remits. The regulator has applied for enforcement powers under the BPRs that would enable it to establish injunctions against entities that market energy contracts and services to businesses in a misleading manner. Ofgem confirmed on 11 October is aiming to gain these powers later this year.
This forms part of Ofgem?s wider work on regulating the TPI sector, which includes the development of a Code of Practice for organisations that operate in the business market. A consultation is expected in December on the content and governance arrangements for this Code as well as other regulatory options that may impose greater control on TPIs. Industry has been developing a draft Code with Ofgem over the past six months. Provisions within the draft Code look to ensure that TPIs provide clear and complete information to businesses, have ?honest? marketing tactics and have appropriate monitoring arrangements in place to provide effective service to their customers.
Ofgem has also published a factsheet for businesses, providing information to help them engage with TPIs and what to do if they feel they are being treated unfairly.
Measures to prevent rogue brokers targeting non-domestic consumers should be welcomed.
Government and EDF Energy strike nuclear deal
EDF and the government have reached an agreement on the provisional strike price for a new nuclear reactor at Hinkley Point in Somerset.
The agreement, unveiled on 21 October, is for financial support at a strike price of up to 92.50/MWh, fully indexed to the consumer price index, for the power generated from the Hinkley Point C nuclear power station. These prices will be guaranteed for 35 years.
According to the government, the project will result in around 16bn of investment and the creation of up to 25,000 jobs. It is also estimated that the power station will reduce the UK's carbon emissions by 9mn tonnes per year. Subject to a final investment decision by July next year, EDF Energy expects to complete commissioning of the first reactor at the Hinkley Point C power station in 2023.
National Grid confirms capacity to deliver for winter
The UK's energy market has the capability to reliably meet consumers gas and electricity needs over the upcoming winter. This was the headline of the system operator?s Winter Outlook 2013-14 report published on 7 October. But National Grid said it will be keeping a close watching brief on supplies as the risk of blackouts was predicted to be at its highest since 2008.
Under average conditions the margin is forecast at 8%. Yet National Grid said it was confident that extra supplies would flow from the Continent if the country risked a supply shortage.
National Grid noted gas supplies look secure but there is considerable uncertainty over where supplies would come from.
Government launches Balance of Competence Review on Energy
The government has published a call for evidence on the balance of competence between the UK and the EU on energy policy.
The call for evidence, unveiled on 24 October, will provide an analysis of what the UK's EU membership means for national energy interests. Energy and climate change secretary Ed Davey said the review is an important and unique opportunity for people and interest groups to have their say on how the country interacts with the EU. Davey said energy plays an important role in all sectors of society and called on people to help inform an important national debate.
The review runs until 15 January 2014.
Customer satisfaction with energy industry failing
Actions taken by the UK's largest energy supplier to increase customer satisfaction are failing, according to price comparison website uSwitch.
Published on 23 October the company's Energy Awards 2013 revealed that last year?s overall increase of 4% in customer satisfaction has shrunk to just 0.7%.
Director of consumer policy Ann Robinson said the results show that last year's focus on putting customers first seems to have already started running out of steam. Customer satisfaction has moved in the right direction, but a year-on-year improvement of less than 1% is disappointing to say the least.
For overall customer satisfaction E.ON UK took the top spot with an overall score of 71%. The supplier also came first in the largest number of categories. RWE npower came last for the sixth consecutive year.
Government to underwrite 33bn of infrastructure projects
The government has earmarked a raft of new energy projects that could be in the running for receiving financial support.
In total the 40 projects, which have reached the pre-qualification stage of the UK Guarantees Scheme, are worth 33bn. More than half of the projects are in the energy sector. The projects include a Forth Estuary windfarm, a biomass plant in Bristol and a gas storage facility in Ireland. Should the projects fail to attract private funding, the government will step in to underwrite part or all of the capital spending required.
The 40bn UK Guarantee Scheme forms part of the government's efforts to encourage private sector investment and to boost spending seen as vital to the economy's long-term development.