Cornwall Insight comments on Tuesday’s wholesale power price surge

Tuesday saw a series of events in the UK and Europe wholesale gas and power markets that contributed to a sharp day-on-day jump in prices, putting a stop to the recent downward trend in wholesale prices.

Tuesday’s incidents:

  • In France, news of problems with components to a critical supplier of equipment to EDF’s reactors, raising concerns of shutdowns to address issues.
  • The European Court of Justice overturned a previous ruling that had allowed Gazprom to utilise more than half the capacity of the OPAL gas pipeline that connects Germany with the Russian-backed Nord Stream pipeline.
  • The Dutch government confirmed plans to formally cease production at the onshore Groningen gas field 80 years ahead of schedule in 2022.

Both gas and electricity prices were affected by this news and saw October ’19 NBP natural gas prices increase by almost 20% day-on-day to 37.28p/th while the Winter ’19 contract rose by nearly 15% to 46.03p/th, with support echoing across the longer-dated contracts.

It was a similar story in the GB Baseload electricity market, as well as the EU carbon allowance market. Prompt contracts showed little overall movement, however, with most gains seen in the longer-dated periods.

Dr. Craig Lowrey, Senior Consultant at Cornwall Insight, said:  

“These events in a short space of time created the perfect storm for the wholesale gas and power markets, causing a steep increase in prices. In general, wholesale prices have been on a downward trajectory for much of 2019, but Tuesday’s developments reverse almost a month’s worth of losses in just a single day’s trading.

“Even though the markets gave up some of Tuesday’s gains on Wednesday, the lack of clarity on the EDF and OPAL issues, in particular, will be a concern for market participants. This will have consequences for energy customers due to higher wholesale prices normally being reflected in supplier tariffs.

“Unforeseen events are inevitable but having three of them occur within the space of 24-hours is something that market participants would not expect. Given that the last two winters have seen extremes of weather – with resultant impacts on energy demand – the risk of such events highlights the ever-growing uncertainty faced in the UK and Europe.”