Wholesale power and gas prices rose across the board in July, with many contracts rising for a fifth consecutive month.
Day-ahead power prices grew 6.3% in July to average £57.6/MWh. Prices peaked at £59.5/MWh on 17 July amid lower renewables output caused by the ongoing heatwave. This has seen wind generation drop from 1.7TWh in June to less than 1.3TWh in July, its lowest monthly output in two years, meaning more expensive forms of generation are required to meet demand. All seasonal power contracts rose in July, up 3.7% on average. Summer 19 and winter 19 experienced the largest change, both gaining 4.7% to £51.0/MWh and £57.0/MWh respectively.
Day-ahead gas rose 4.0% to average 57.7p/th, supported by higher demand for power generation across Europe and high LNG prices. Prices increased from 54.6p/th at the start of July to a peak of 60.0p/th, amid reduced Norwegian gas flows on 10 July. All seasonal gas contracts lifted in July, gaining 5.1% on average. Winter 18 gas saw the least change, up 2.5% to average 64.2p/th. Summer 19 saw the greatest change, rising 6.3% to average 51.4p/th. A combination of short-term factors including low renewables output and high gas for power demand across Europe have fed through to longer-term gas contracts.
EU ETS carbon and API 2 coal hit fresh highs
EU ETS carbon gained 7.5% to average €16.4/t in July, its seventh consecutive monthly rise. Prices hit a fresh seven-year high of €17.6/t on 24 July. Prices are currently above many predictions made by analysts in Q2 18, with most expecting allowances to reach this high at the end of 2018 ahead of the Market Stability Reserve launch in January 2019. Carbon has been supported by improved economics for coal generation in Europe, as well as ongoing heatwaves sweeping the continent lifting coal-fired power demand. The heatwave has led to falling hydropower reservoirs, and reduced availability of cooling water at nuclear power plants.
Brent crude oil prices fell for the second consecutive month, dropping 0.5% to average $75.2/bl during July. Prices continue to be influenced by ongoing geopolitical tension, including the US-China trade war and the upcoming US sanctions on Iran. Prices fell below $72.0/bl on 17 July for the first time since April as concerns changed from a tight market to the potential for oversupply as Saudi Arabia raises output.
API 2 coal prices rose for the fifth consecutive month, up 1.6% to average $89.4/t.
The month-ahead: Market fundamentals signal gas and power prices to remain high
The warm weather currently sweeping Europe is forecast to continue well into August, and whilst solar PV generation is setting new records this summer, wind output is likely to remain low amid the still conditions. This will see an increase in gas for power demand and potentially reduce nuclear availability in Europe. Also, North Sea gas strikes and a series of planned outages reducing production levels could support gas prices.