There has been significant volatility in electricity markets over the last 10 days which has seen short term prices surge to their highest levels since 2009. At present, price swings in excess of £10 per MWh are being experienced for the near winter months. Prices further out, whilst impacted, have seen minimal differential.
The main reasons for the surge in prices is generation availability for this winter, not just in UK but also mainland Europe. There are continuing fears over French power supply this winter, which has intensified last week following the French nuclear safety authority ASN’s formal request for five nuclear plants to be shut down for 3 months for safety tests on generating equipment. They also reported that safety tests be stepped up at 6 other nuclear plants that are already offline.
Switzerland’s largest nuclear plant will be out of operation until mid-February and reports that 40% of German nuclear plants may be taken offline for refuelling in Q1, 17.
Winter weather forecasts have also contributed to what is already a nervous market. Some forecasts predict a colder winter whilst coal prices have been strong following high Chinese demand.
The impact of Theresa May announcing the UK will provide notice to leave the European Union by end of March 2017 impacted currency markets with Sterling dropping by 10%. With oil, coal and trades with Europe all impacted by changes in currency exchange rates, the markets reacted adversely. One of the UKs largest Financial institutions advised that they do not believe that currency exchange rates will return to pre BREXIT vote levels for at least 10 years and that we are now in a new world following the vote.
It is extremely likely that we will see strong electricity prices for the remainder of the winter however as generation capacity comes back to the grid, it will help bring prices down. The return of Rough Storage Facility in November should also help with prices.
At present, we do not believe it is right to panic buy as the main shift in prices has already occurred and we are seeing the price volatility limited to the main winter months. We have seen wholesale energy prices ease significantly over the last couple of years of which we perfectly tracked the markets for our customers benefit. This is the first set of adverse conditions we have seen in over 2 years which have all combined at the same time and our view is that the markets have over reacted and we will see prices start to settle.
We are continuing to track the market conditions beyond the forthcoming winter and will provide further advice if the current generation worries across Europe look set to continue into next summer and beyond.
Please contact your account manager if you have any questions or to discuss your procurement strategy in more detail.
