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The wholesale energy complex is ever-evolving and fundamentals have changed drastically over the past few years. The Winter’20 power price saw a spike in late 2018, trading as high as c.£61/MWh, whilst recent fundamentals have driven it down to a low of c.£38/MWh early this summer.
So what has driven this drastic shift?
- Liquefied Natural Gas (LNG) liquefaction capacity has ramped up over the past couple of years, with new projects opening in the U.S., Russia and Australia. This has flooded the global market with gas, with demand not able to keep pace. In the UK, LNG imports have been continually breaking records month-on-month, whilst further supply growth is expected over 2020.
- Mild temperatures this winter and last winter has kept demand subdued and allowed European gas storage stocks to remain high, with levels 20% fuller than normal at this time of year.
- More recently the coronavirus pandemic has sent shockwaves through the industry, significantly disrupting supply / demand balances and causing market volatility. Severe demand destruction caused by nationwide lockdowns has heavily weighed on global gas markets, and caused crashes in other commodities. The front-month WTI oil contract plummeted into negative territory for the first time in history in April.
All the above has played a big role in driving the UK power market. The chronic oversupply in the gas market, exacerbated by the coronavirus pandemic, has significantly pressured near-term contracts, with negative prices seen often in the prompt. Bearish sentiment has also filtered through down the curve, however, a reduction in French nuclear availability this winter and the easing of lockdowns / hopes of a quick economic recovery has added support.
After all that I bet you are wondering how you can stay on top of the wholesale energy price as it changes, especially in uncertain times like these?
Energy is a complex business, but hopefully we can make it simpler. You can keep informed on the changing prices through us at EDF. Join our free bi-monthly webinars on the UK Power Market with James Chaplin, Power & Gas Trader in the Portfolio Hedging team.
The next one is coming soon, on 10 June 2020 at 3pm. Don’t miss out! Sign up here.
In the meantime, watch James run through the factors that influence the wholesale price of power – what they are, how they work, and what to look for – in more detail.
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