Energy Wholesale Market Review – 4 August 2023

Headlines

This week represented a relatively mixed outcome for gas and power prices, with conflicting market fundamentals dictating the movement of prices. Firstly, day-ahead gas rose 9.8% to 70.25p/th as plant maintenance at Troll and Kollsnes acts to reduce Norwegian flows and tighten gas supplies. Similarly, day-ahead power rose 8.6% to £76.00/MWh, supported by lower wind outturn and increased demand. Elsewhere, September 23 gas was up 8.4% at 73.20p/th, and October 23 gas increased 5.1% to 84.00p/th. Opposing this, most seasonal gas contracts declined last week, down by 1.0% on average – while both winter 23 and summer 24 gas dropped 1.5% and 1.6% respectively, subsiding to 115.00p/th and 120.50p/th. This comes following strong EU gas storage levels, acting to provide relative stability to seasonal contracts.  All seasonal power contracts declined this week, down on average by 1.9%, as winter 23 power decreased 1.3% to £112.00/MWh, while summer 24 fell 2.3% to £105.50/MWh. Carbon markets saw a bearish sentiment from the week previous as UK ETS prices fell to a record low of £40.25/t on Thursday. Similarly, EU ETS carbon saw a 5.8% drop to €85.64/t.

Baseload electricity

Forward curve comparison

  • Day-ahead power rose 8.6% to £76.00/MWh, following its gas counterpart higher, with further gains supported by lower wind outturn and increased demand.
  • However, September 23 power slipped 0.6% at £76.50/MWh, whereas October 23 power increased 2.9% to £83.50/MWh.

Annual October contract

  • Q423 power remained static at £106.00/MWh.
  • The annual October 23 contract lost 1.8% to £108.75/MWh, 60.5% lower than the same time last year (£275.00/MWh).

Peak electricity

Forward curve comparison

  • Day-ahead peak power was up 7.8% to £77.00/MWh, following its baseload counterpart higher.
  • September 23 peak power declined 4.7% at £88.00/MWh, and October 23 peak power increased 3.3% to £99.00/MWh

Annual April contract

  • The annual October 23 peak power rose 5.5% to £126/MWh
  • This is 61.5% lower than the same time last year (327.62/MWh).

Seasonal power prices

Seasonal baseload power contracts

  • All seasonal power contracts declined this week, down on average by 1.9%.
  • Winter 23 power decreased 1.3% to £112.00/MWh, while summer 24 fell 2.3% to £105.50/MWh

Seasonal baseload power curve

  • Like baseload, all seasonal peak power contracts declined this week, down 5.5% on average.
  • Both winter 23 and summer 24 peak power dropped 5.5%, falling to £136.50/MWh and £115.50/MWh respectively

Commodity price movements

Oil and coal

  • Brent crude reached a three-month high of $85.34/bl on 31 July during a period of sharp growth across oil prices in the latter half of July.
  • For this week in particular, brent crude registered a week-on-week gain of 2.2% to $84.90/bl.
  • Improving Chinese demand outlooks, and OPEC+ supply cuts were impacted by a U.S. government credit downgrade, reflecting an expected fiscal deterioration and a large government debt burden.
  • Similarly, signs of profit-taking after rallying in July when some investors wagered on tightening global supply and demand growth provided further bearish sentiment, limiting the gains registered.
  • Chinese economic growth is set to resurge according to some market commentators, further tightening the global supply/demand balance.

Carbon (UK and EU ETS)

  • As the disparity between scheme prices remains at an all-time high, due to recent policy adjustments across both schemes, the UK ETS experienced its lowest price since the scheme opened in May 2021.
  • UK ETS prices fell to a record low of £40.25/t on Thursday, finding support from a large drop in carbon-intensive power generation – averaging £42.77/t, down 10.9%.
  • Similarly, EU ETS carbon saw its lowest value in two months, with prices dropping to €84.40/t on Wednesday.
  • Price drops across the EU ETS were the result of growing selling pressure despite preparation for the August cut in auction supply, leading to a 5.8% drop to €85.64/t.
  • The European Commission published a proposal regarding the annual volumes to be auctioned for the REPowerEU – with market analysts commenting the volume is higher-than-expected, potentially proving bearish support for carbon prices.

Wholesale price snapshot – Friday-on Friday

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