Weekly UK Insight - 21 January 2019


p/therm 11 Jan 19 18 Jan 19 Change
Day-Ahead (DA) 58.20 60.40 3.8%
Feb 2019 61.39 61.79 0.7%
Summer 2019 53.06 54.76 3.2%
Winter 2019/20 62.23 64.22 3.2%

Source: Reuters

The UK’s Day-Ahead gas price increased 3.8% to 60.40 p/therm reflecting a notable drop in temperatures towards the end of last week. Temperatures are largely forecast to stay below seasonal normal levels until end of February indicating an extended cold spell. National Grid’s forecast gas demand is expected to hit 357 mcm/d on Monday, 65 mcm/d over seasonal normal demand.

High imports from Continental Europe also saw the Dutch BBL and Norwegian Langeled pipelines both flowing at close to 100% of capacity, leading to an oversupplied UK gas system.

Five LNG tankers are expected to arrive at UK terminals over the next two weeks, boosting total LNG send-out to around 60+ mcm/d from all UK terminals.

Summer 2019 gas prices rose 3.2% to 54.76 p/therm reflecting gains in European gas, crude oil, coal and carbon prices.

Crude oil production cuts and rising forecasts for gas demand could drive seasonal prices higher in the short term. However, LNG prices have been trending down in recent months as new global projects coming online meaning that prices are unlikely to rise too quickly.

The LNG supply side remains very healthy, with at least three major projects in the United States expected to get the go-ahead in the first six months of 2019. The flurry of activity has the United States on track to become the third largest exporter of LNG in the world, behind Australia and Qatar.


Weekly UK Insight 21 January 2019
Source: Reuters


£/MWh 11 Jan 19 18 Jan 19 Change
Day-Ahead (DA) 56.47 64.86 14.9%
Feb 2019 62.99 63.89 1.4%
Summer 2019 55.08 56.88 3.3%
Winter 2019/20 61.49 63.72 3.6%

Source: Reuters

Day-Ahead power prices jumped 14.9% to £64.86/MWh in response to higher gas spot prices and low wind power output, which is forecast to peak at just 3.3GW today.

Summer 2019 power prices gained 3.3% to £56.88/MWh, rising in line with the equivalent gas contracts while higher coal and carbon prices also drove gains.

A modest strengthening of the Pound Sterling also made power imports via interconnectors less expensive. Traders are awaiting information about Theresa May’s Plan B for Brexit, which could be a key driver for currency this week.


Weekly UK Insight 21 January 2019
Source: Reuters


$/bbl 11 Jan 19 18 Jan 19 Change
Brent Crude Mar 19 60.48 62.70 3.7%

Source: Reuters

Brent crude oil prices rose 3.7% to $62.70/bbl last week, after official data showed oil refinery processing in China, the world’s second-largest oil consumer, climbed to a record last year despite a slowing economy. China’s refinery throughput was up 6.8% from the previous year.

Gains were also a response to news that energy firms in the U.S. cut the number of rigs drilling for oil by 21, taking the total count down to 852, the lowest since May 2018.


Weekly UK Insight 21 January 2019
Source: Reuters

Exchange Rates & Economics

£/$ 11 Jan 19 18 Jan 19 Change
GBP/USD 1.2841 1.2873 0.2%

Source: Reuters

The value of the Pound Sterling versus other leading currencies was little changed, as traders tentatively awaited UK Prime Minister Theresa May’s Plan B for Brexit, after her deal was rejected by MPs last week. The PM will address the House of Commons at 3:30pm today.


Weekly UK Insight 21 January 2019
Source: Reuters

Regulatory and Market News

National Grid unveils proposed terms, de-rating factors for renewables in the Capacity Market

National Grid has outlined how renewables could participate in the Capacity Market, unveiling technology-specific de-rating factors that range from 1–15%.

However renewables, and especially solar, stand to provide only a marginal contribution to how the energy system can respond to stress events if the ESO’s de-rating factors are anything to go by.

The indicative de-rating factor for solar for forthcoming delivery years ranges from 1.17% to 1.76%, representing how solar’s contribution to stress events, which predominantly occur outside of daylight hours, is negligible.

Onshore and offshore wind meanwhile stand to have a more meaningful contribution with wind factors ranging from 8.2% to 14.6%. Battery storage technologies meanwhile will retain the de-rating factors applied to them last year (17.89% for 30-minute duration batteries).

De-Rating Factors (%) for T-1, T-3, T-4 CM Years

Base Cases Onshore Wind Offshore Wind Solar PV
T-1 2020/21 8.98% 14.65% 1.17%
T-3 2020/23 8.40% 12.89% 1.76%
T-4 2023/24 8.20% 12.11% 1.56%

Source: National Grid

Onshore wind’s de-rating factor for the delivery years ranges between 8.2–9%, offshore wind’s are between 12.1 and 14.6% and solar, given its notional contribution to grid supply when stress events are most likely to occur, has been handed de-rating factors of between 1–2%.

National Grid said solar’s EFC would have been “almost negligible” had it not been for the introduction of short-duration storage technologies.

The thinking behind this is by contributing towards the country’s energy demand during daylight hours, solar can delay the introduction of battery storage output, providing a small but meaningful contribution towards meeting stress events.

However National Grid warned that any introduction of renewable energy into the CM would require regulatory overhaul from BEIS and Ofgem, which would take some time.

LINK: National Grid – de-rating factors Jan 2019

Hitachi shelves plans for new 2,900MW nuclear power plant at Wylfa

Hitachi has shelved plans to build a new nuclear power plant in Anglesea, North Wales. The company said it would write off £2.14bn as a result. Hitachi said it hoped to continue discussing a nuclear power programme with the UK government, but had not been able to agree financial and commercial terms for Wylfa.

The firm had planned to build advanced boiling water reactors (ABWRs) at Wylfa and at a second site at Oldbury on Severn, South Gloucestershire.

However, Hitachi CEO, Toshiaki Higashihari said: “We will be suspending the development of the Wylfa Newydd project, as well as work related to Oldbury, until a solution can be found.

Hitachi follows Toshiba in halting plans to build new nuclear power stations in the UK. Hitachi’s decision means that there remains only three new planned nuclear plants in Britain: Hinkley Point C (3.2GW under construction); Sizewell C (3.2GW – proposed); and Bradwell B (2.3GW proposed).

Energy secretary Greg Clark told the Commons that “Across the world … the cost of most new nuclear projects has increased as the costs of alternatives has fallen,” he added, with investors looking at quicker, less capital intensive and less risky projects.

LINK: Hitachi – Wylfa nuclear plant cancelled


Disclaimer: These views and recommendations are offered for your consideration and Beond makes every effort to ensure that the data and information in this report is accurate. However, due to the volatile and unpredictable nature of the energy markets, Beond cannot guarantee the accuracy of both the information and the recommendations provided. Beond does not accept any responsibility for errors or misstatements, or for any direct, indirect, consequential or other loss arising from any use of this information and/or further communication in relation to this information.