COVID-19, Brexit, LNG supply – EDF’s James Chaplin explains what’s affecting the UK Power Market this winter

As we entered this winter there were many uncertainties ahead, even more so than normal with weather, LNG supply, Brexit and COVID-19 at the forefront of the market. These uncertainties have certainly not disappointed with high volatility seen over the past few months.

Festival Net Zero 2021

Image: EDF Energy

So what have we seen so far and what are the risks ahead?

  • The LNG market has been particularly tight with La Nina bringing prolonged cold weather to Asia, whilst supply disruption has hindered Australian exports. We saw the spot Asian LNG price reach a peak of c.290p/th (3.5x higher than UK) as buyers scrambled to attract cargoes amid fears storage would run dry. As a result LNG supply has been diverted away Europe and towards Asia.
  • The tight LNG supply market along with cold weather in Europe caused gas prices to rocket in Europe, with the UK February 2021 contract reaching over 83p/th on 12 January, a rise of almost 100% since the start of winter.
  • Carbon prices have also contributed to the bullishness. The EU agreement of their 2030 emissions reduction target, combined with cold weather and a long pause in auctions caused EUA prices to break through key resistance levels and set new all-time highs.
  • Tight power margins in the UK pushed day-ahead baseload and peak load contracts to new record highs on Thursday 14 January, at £195/MWh and £350/MWh respectively.

Although risks have eased in both Europe and Asia recently along with a milder weather outlook, there are still many uncertainties. A Sudden Stratospheric Warming (SSW) event could bring colder weather to Europe in February, whilst LNG supply continues to be limited due to the Asian price premium. The market is likely to be sensitive to any changing fundamentals.

These points only scratch the surface of the market drivers this winter, so I’m sure 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 4 February 2021 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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