Impact of Coronavirus on Wholesale Energy Costs and Third Party Charges 26th January 2021
The impacts of the national lockdown due to COVID-19 has been felt no more so than in the energy industry, with increased volatility to wholesale energy markets and third-party charges also being affected significantly.
National electricity demand fell by as much as 14.3% during the initial lockdown in March 2020, impacting wholesale electricity costs which fell to their lowest levels in 12 years, with the first ever negative daily electricity prices and 17 consecutive hours of negative prices on 23rd May 2020.
Wholesale gas costs also fell substantially, including a low that was last seen in the late 1990s, with day ahead gas prices trading at 9 pence per therm due to an oversupplied gas market and daily temperatures which were well above seasonal norms.
Combined with healthy gas imports from the continent and an excess of LNG arriving on UK shores, this kept wholesale prices depressed. However, whilst Wholesale costs were reduced, we saw the opposite effect on Third-Party Costs.
The drop in national electricity demand caused the National Grid to raise an urgent modification that enabled the Sizewell B nuclear power station to reduce its generation output during the summer months.
This helped to maintain the system’s stability and balance that resulted in significant increases in balancing costs.
The impacts of record renewable generation from both solar and wind in Q1 and Q2 2020 will also lead to increases for those customers that have structured contracts on a pass through basis, with a contract for difference charges increasing by 5%.
With the volatility of both wholesale energy costs and third-party costs set to continue, we would be pleased to provide advice on how best to manage these risks and opportunities to minimise your energy costs.
If you would like to discuss your energy costs requirements, contact us on 01384 397777 or email@example.com and, we will be pleased to provide advice.
CURRENT MARKET POSITION
The UK struck a last-minute trade deal with the EU, concluding years of negotiations. Until this point, a deal felt out of reach with only one week to go on the deadline, creating shock waves in the markets. Boosted by certainty, prices rallied upwards, and the Sterling (£) trading strongly. Parliament voted the deal through on 30th December 2020, another critical moment that moved the market further. Mass vaccination began on 8th December 2020, the first vaccine outside the UK’s trail conditions with the Pfizer/BioNTech vaccine rollout. The vaccine campaign is moving at breakneck speed, with the Oxford AstraZeneca approved by the MHRA on 30th December 2020.
The end of December 2020 saw several areas enter tier 3 and 4 as the Department of Health (DoH) identified a new ‘Kent’ variant of coronavirus as 50 to 70% more infectious. The government announced a third national lockdown on 4th January 2021 to last until 31st March 2021, with a government review set for mid-February. This announcement did cause prices to drop by a large margin initially. However, unlike the last two lockdowns, its effect was short-lived, and prices rebounded stronger, with other inputs still pushing up prices a couple of days later on.