Innovative Energy Consultancy Ltd
Innovative Energy Consultancy Ltd

Wholesale prices hit fresh highs

Wholesale power and gas prices rose across the board in August, with many contracts rising for a sixth consecutive month.

In the nearer term, day-ahead power went up 5.8% to average £60.9/MWh. Prices rose as low renewables output led to more expensive forms of generation meeting demand, with the contract ending the month at a five-month high of £66.4/MWh. All seasonal power prices grew in August, up 5.4% on average. Winter 18 ascended 5.3% to average £65.2/MWh, peaking at a record high of £70.6/MWh on 28 August. Rising gas and commodity prices, which, coupled with low renewables output throughout August, has led to sustained growth for near-term and seasonal power contracts.

Day-ahead gas rose 6.8% to average 61.6p/th. Prices increased from 58.5p/th at the start of August to highs of 68.3p/th on 28 August. Prices have been supported by increased gas demand for power generation amid low renewables output, and several strikes and outages affecting North Sea supplies. All seasonal gas contracts increased in August, rising 5.1% on average. Winter 18 gas prices rose 5.2% to average 67.5p/th. Winter 18 peaked at a record high of 73.8p/th on 28 August, finding support from commodity prices.

EU ETS carbon at a 10-year high, but oil and coal fall

EU ETS carbon gained 12.7% to average €18.4/t in August, its eighth consecutive monthly rise. Prices hit a fresh 10-year high of €21.8/t on 27 August. Prices were supported by an announcement from the European Commission that German auctions will be postponed from 9 November until early 2019, deferring the sale of 21.8mn allowances until next year, and creating a tighter carbon market. The news has led analysts from several firms, including ICIS, to revise their carbon price expectations. ICIS forecast EUA prices to end 2018 at over €20.0/t, whilst analysts from Carbon Tracker Initiative have revised forecasts to €25.0/t having previously predicted prices to end 2018 at $15.0/t. A rise in EU ETS carbon prices is important for wholesale power, as prices incorporate the cost of carbon.

Brent crude oil prices fell for the third consecutive month, dropping 2.6% to average $73.2/bl during August. Prices continued to respond with volatility to ongoing geopolitical tension amid the US-China trade war, and the upcoming US sanctions on Iran. Prices fell to below $70.6/bl in the middle of the month following the announcement of an unexpected build in US crude stockpiles. Prices recovered towards the end of August, peaking at $76.7/bl on 28 August.

API 2 coal prices fell for the first time since March, down 1.5% to average $88.0/t. Coal dropped to $84.8/t on 2 August, its lowest since May. As with the other commodities, coal rose towards the end of the month, to $92.3/t on 29 August.

The month-ahead: Market fundamentals signal gas and power prices to remain high

Higher wholesale power prices could be sustained or further supported as low renewables, rising commodities, and planned gas field outages, continue to provide support for the wholesale market. However, the latest medium-term forecast, from the Weather Company, suggests warm weather could last until November, and may provide respite from upwards price movements.