The UK and EU energy market

The UK and EU energy market continues to be volatile, unpredictable, and very much on edge amid the backdrop of the conflict that is ongoing in Ukraine after Russia’s invasion.
Although the market has seen some softening and bearish drivers come to the fore since the record high spikes seen around Dec/Jan time, gas and power prices are still susceptible to any news or events that could cause another knee jerk reaction and will keep the market jittery until we see some form of de-escalation in Ukraine.

The good news is the UK especially is seeing a raft of LNG arrivals that is helping to build up gas storage ahead of next winter to try and soften the blow should any moves by Russia to halt gas supplies to key European hubs happen (Poland and Bulgaria have seen such measures already). Coupled with healthy gas flows from Norway, warmer weather, and better renewable output. All of which has helped see prices decrease by 70% from the highs seen when Russia invaded Ukraine (Month Ahead UK Power)

Our advice during these volatile times would be to see what alternative options are out there until we see some stability and a new normal return for pricing levels.

On a more risk managed approach you could opt for a flexible framework contract rather than the traditional fixed term offerings. This could be in the form of a standalone contract if your portfolio is large enough consumption wise or join a basket portfolio to merge a pooled volume of various clients.

This form of energy purchasing allows for short term transactions such as monthly or quarterly, which avoids having to secure long term at high price points which are typically for at least 12 months via the traditional fully fixed route. This also allows for more bearish factors and drivers to perhaps filter into the market. Lately we have actually seen a divergence between month ahead energy prices vs seasonal, as the supply/demand status is helping to pressure nearer term more heavily.

Alternatively, we could negotiate with suppliers to see what fully fixed options can be sourced for shorter durations, such as 3 or 6 months from your incumbent supplier. Again, this will help mitigate securing longer durations until we see better price points hopefully transpire.

To highlight just how volatile and unprecedented the price increases have been over the last 18 months, the wholesale p/kwh UK power price was trading at around 6-7p/kwh about 18 months ago and spiked to an incredible 57p/kwh around Dec 2021 as rumblings around potential Russian invasion and disruptions to gas supplies surfaced. For April 2022 we are now trading at around 17-18p/kwh. (Wholesale element only which accounts for around 45% of your costs, with the other 55% made up of taxes and levies in the form of non-energy costs)

Advantage Utilities would also recommend in allowing us to explore what products and services are available to you to try and reduce your consumption, especially whilst prices remain so elevated.

Starting with a simple desktop audit that often leads to site audits, which may result in measures that can help reduce energy and costs.

Tim Ross
info@advantageutilities.com
020 8131 3185