Future of Energy

A cautiously steady outlook for energy prices

Posted on 05 February 2020
By Ben Spry
Ben Spry
Head of Risk Management

Ben manages the operational delivery of our risk management services, including the award-winning Optimisation Desk and its new suite of Demand Side Response products.

What will the wholesale market do? If only we knew for sure…

But the experts on our Optimisation Desk are constantly looking at the many drivers – including weather forecasts, global political developments, generation updates, gas storage levels, interconnector activity and more – to determine what may lie ahead.

They’ve pooled their latest findings – as well as some personal views – in the 2020 Market Outlook report. To give you a quick preview, here are a few highlights…

Weather helping ease pressure on gas

Despite early forecasts suggesting a cold winter, the milder weather continues with no cold spells forecast until the end of February, if at all.

As a result, the UK continues to have plenty of gas supplies. And growing LNG exports from the US along with falling demand from Asia are keeping prices on the low side.

Ukraine and Russia have also signed a five-year transit agreement, which will secure a route for Russian gas supplies heading to Europe.

UK power profile changing

When it comes to power, UK renewables grew by almost 10% in 2019 – and are set to increase further in 2020.

As long as we don’t see any extended cold spell over the coming months – which appears unlikely – we should be able to comfortably withstand ongoing nuclear outages and continued closures of coal-fired power stations.

The new ElecLink interconnector with France is due to come online shortly and this, combined with other interconnector flows, is likely to provider cheaper imports.

Although interconnectors are governed by EU legislation, contingencies for a similar agreement have been drawn up in the event of a no-deal Brexit scenario.

So we look to be well supplied over the coming year, which is likely to keep prices on the lower side – at least in theory.

Keeping a close eye on currency values

How Brexit trade deals take shape over the coming months will be a key driver for the performance of the Pound, which will obviously impact the cost of the large volume of energy we import.

In the event of a poor deal – or no deal, with the UK having to then operate under WTO rules – we are likely to see the Pound’s value drop, and energy prices increase.

Further afield, the US-China trade war looks set to be resolved, although who knows what impact the current coronavirus outbreak will have.

If we see a further slowing of global growth, then that is likely to depress currencies as well as commodity prices.

Other key drivers under scrutiny

The 2020 Market Outlook report also looks at:

      • Oil prices
      • Influences from the Middle East
      • Carbon prices
      • Future network charging policy changes

To read the full report, existing flexible purchasing customers can download the 2020 Market Outlook from our Risk Navigator online portal.

Otherwise, drop an email to optimisation.desk.team@npower.com to request a copy.

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