Wholesale power and gas prices continued to rise throughout September, with many contracts rising for a seventh consecutive month and reaching fresh record highs.
Looking towards near-term power contracts, day-ahead power went up 9.4% to average £67.7/MWh. Prices rose throughout the month amid relatively low renewables output, which acts to push wholesale costs higher as more expensive forms of generation are required to meet demand. The contract peaked at £72.6/MWh on 24 September.
All seasonal power prices also grew in September, up 8.6% on average. Winter 18 ascended 11.0% to average £73.2/MWh, peaking at a fresh high of £76.2/MWh on 24 September. Growth was fuelled by rising gas and commodity prices. As the cost of emitting carbon is factored into the cost of thermal power generation, higher carbon prices have led to higher wholesale power prices.
Day-ahead gas surged 18.3% to average 74.2p/th in September. Prices started the month at 69.3p/th and reached highs of 79.8p/th on 24 September. Prices have been supported by rising commodity prices, with EU ETS carbon hitting a 10-year high of €25.8/t on 10 September. All seasonal gas contracts increased in September rising 11.4% on average. Winter 18 gas prices rose 15.0% to average 78.7p/th, hitting a record high of 82.9p/th on 24 September, similarly finding support from commodity prices.
Four, five and 10-year highs for oil, coal and carbon
EU ETS carbon gained 15.6% to average €21.7/t in September, its ninth consecutive monthly rise. Prices hit a fresh 10-year high of €25.8/t on 10 September. A rise in EU ETS carbon prices is important for wholesale power, as prices incorporate the cost of emitting carbon.
Brent crude oil prices rose 7.1% to average $78.9/bl in September. The upcoming US sanctions on Iran continued to provide support to prices as this could reduce available supplies in the market. This led prices to set a four-year high at above $82.0/bl on 25 September. OPEC and Russia held a meeting in Algiers on 23 September to discuss raising production levels; however, the meeting ended with no formal agreement on any additional supply boost. OPEC’s Secretary-General, Mohammad Barkindo, announced last month that world oil consumption will reach 100mn bpd this year, much earlier than previously expected.
API 2 coal prices lifted 8.3% to average $96.0/t. Coal started the month at $91.3/t and rose to a fresh five-year high of $98.4/t on 21 September. Demand for coal has grown in Europe following the recent record highs in wholesale gas prices across the continent, leading a rise in coal-fired power generation.
The month-ahead: Market fundamentals signal gas and power prices to remain high
Revised colder weather forecasts for early October are expected to increase gas demand, with regional gas demand up to 24mcm higher on 1 October in response to increased heating in homes. Higher demand will likely push gas prices upwards, and feed into wholesale power markets.
EU ETS carbon prices are expected to remain above €20.0/t as series of outages at Belgian nuclear reactors will see seven of the country’s eight reactors offline from 20 October, potentially resulting in higher fossil fuel burning in Europe and pushing demand for EUAs higher.