Weekly UK Insight - 4 March 2019


p/therm 22 Feb 19 1 Mar 19 Change
Day-Ahead (DA) 44.75 43.80 -2.1%
Apr 2019 44.13 43.07 -2.4%
Summer 2019 44.63 44.22 -0.9%
Winter 2019/20 58.07 58.00 -0.1%

Source: Reuters

The UK’s Day-Ahead gas price fell 2.1% to 43.80 p/therm as above seasonal normal UK temperature left the UK gas system broadly balanced. Additionally, stronger UK wind power generation at the start of March reduced demand for gas to be used in power generation.

National Grid’s forecast gas demand is expected at 269 mcm/d, nearly in line with the seasonal normal demand of 268 mcm/d.

On the supply side, UK LNG terminals are expecting five cargo deliveries within the next two weeks, limiting the quantity of gas needed from storage withdrawals and from sub-sea pipelines. Total LNG send-out is expected at 58 mcm/d from all UK terminals.

The well supplied system means that imports via Norway’s Langeled have dropped to 63 mcm/d, while gas flows from Netherlands via BBL are now at 0 mcm/d.

Summer 2019 gas prices fell 0.9% to 44.22 p/therm, pushed lower by falling global LNG prices.

Asian LNG prices fell once more last week, pushing UK gas prices lower, as the global oversupply continued to weigh. Overall LNG demand across north Asia remained weak with Asia’s current LNG price at the lowest level since September 2017, but further losses expected.

The stronger Pound Sterling also made gas less expensive to import from Europe, while a weaker crude oil market was a further bearish price driver for UK gas.


Weekly UK Insight 4 March 2019
Source: Reuters


£/MWh 22 Feb 19 1 Mar 19 Change
Day-Ahead (DA) 46.00 47.54 3.3%
Apr 2019 47.17 47.49 0.7%
Summer 2019 47.87 48.53 1.4%
Winter 2019/20 57.62 58.54 1.6%

Source: Reuters

Day-Ahead power prices rose 3.3% to £47.54/MWh, in response to more expensive spot carbon permits, increasing the cost of burning coal for power production.

Summer 2019 power prices gained 1.4% to £48.53/MWh, tracking a sharp surge in the price of European carbon allowances. An increase in carbon allowances makes the overall cost of burning coal for power generation more expensive, increasing the overall cost of UK electricity.

There are currently no unplanned nuclear outages in the UK, however scheduled maintenance at Hinkley Point B-7 and Hartlepool 2 will remove 1,065 MW of nuclear capacity from the UK National Grid network.


Weekly UK Insight 4 March 2019
Source: Reuters


$/bbl 22 Feb 19 1 Mar 19 Change
Brent Crude May 19 67.12 65.07 -3.1%

Source: Reuters

Brent crude oil prices fell 3.1% to $65.07/bbl on concerns over global demand growth after the release of weak U.S. manufacturing data.

This came despite data showing a drop in OPEC output to its lowest in four years failed to support prices. Members of OPEC pumped 30.68 million bpd in February, down 300,000 bpd month-on-month and the lowest since 2015.

However, oil prices are now expected to rise amid reports that the United States and China are close to a deal to end their trade war that has slowed global economic growth.


Weekly UK Insight 4 March 2019
Source: Reuters

Exchange Rates & Economics

£/$ 22 Feb 19 1 Mar 19 Change
GBP/USD 1.3052 1.3202 1.1%

Source: Reuters

The value of the Pound Sterling rose versus the U.S. dollar on further expectations that the European Union will agree a delay to Brexit, keeping the UK in the EU until 2021.

The U.S. and China appear close to a deal that would roll back U.S. tariffs on at least $200 billion worth of Chinese goods, as Beijing makes pledges on structural economic changes and eliminates retaliatory tariffs on U.S. goods. Hopes of an end to the trade spat between the two world’s biggest economies added support to global financial markets.


Weekly UK Insight 4 March 2019
Source: Reuters

Regulatory and Market News

Supplier payments voluntary while Capacity Market suspended, says UK Government

Energy suppliers will not be subject to mandatory payments to meet Capacity Market levies while the fate of the market is being determined, the Department for Business, Energy & Industryial Strategy (BEIS) has decided.

However, suppliers will continue to be invoiced and have to pay in full within a few weeks of any ‘triggering event’ that reinstates the market. Payments will be held in an interest-bearing account until the market’s future is clear.

Responding to a consultation, BEIS also promised to hold the T-1 auction planned for January in summer this year, allowing pre-registered parties to retain their registration but also allowing them to withdraw from the auction.

It also outlines adjustments for companies that have Capacity Market contracts, including extending deadlines for ‘financial commitment milestones’, connection agreements and various testing and metering requirements.

Proposed regulation for these plans have been laid before Parliament and should come into force in late March.

BEIS makes it clear that the decisions do not address all the implications if the European Commission (EC) does not grant State Aid clearance for the Capacity Market, or if the EC requires changes in the Market.

LINK: BEIS – Capacity Market update Feb 2019

Warrington Council invests in two solar farms, raising estimated £150m in revenue over next 30 years

Warrington Borough Council has bought two more solar farms to raise an estimated £150m in revenue over the next 30 years.

The council, which has previously bought another solar farm and launched a solar bond, last week approved £58.7m of Public Works Loan Board borrowing to build the two farms – near York and Hull. Both sites already have full development rights and grid connection permissions are also in place.

The business plan for the developments predicts rates of return of 8.21% and 11% respectively from selling energy to the National Grid. However, returns from the York solar farm could rise to more than 16% if energy is sold directly to another organisation via a Power Purchase Agreement (PPA) rather than the National Grid.

Danny Mather, head of corporate finance at the council believes: “We are doing this because of the green credentials but have now come up with a model that works really well and generates an excellent financial return for the council.”

The council believes it will also save £1m on its annual electricity bill once the two facilities are completed in October next year. Commercial returns could be boosted further by the potential co-location of battery storage and electric vehicle charging infrastructure.

LINK: Gridserve – Warrington Council solar investment


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