Wholesale power prices expected to remain high for the winter season

The latest Cornwall Insight forecasts suggest winter wholesale power prices are to remain at their high levels, with the potential for price spikes in periods of high demand and low wind, as margins look tight for the winter ahead.

The key driver of power prices will likely be gas prices dictated mainly by short-term supply developments and gas storage levels. With gas prices sitting 134.1% above the five-year rolling average, this shows no signs of abating any time soon.

Joe Camish, Analyst at Cornwall Insight, said:

“We have not seen a typical summer for gas prices with the markets seeing prices that we would expect to see in winter. In fact, 10 August saw the day-ahead gas price reach 111.0p/th, the highest price point for this contact since 1 March 2018, during the Beast from the East extreme weather event. 

“These high prices have been caused by historically low gas inventories and efforts to restore stock levels hampered by several factors, including the recovery in gas demand in response to easing lockdown restrictions and increases in economic activity. This was compounded by periods of weak wind output, a weaker pipeline from the North Sea gas field due to outages and prolonged maintenance at British and Norwegian sites.

“Elsewhere, GB and other European nations have struggled to attract LNG cargo with similar conditions occurring in Asian markets. This has led to high LNG prices reaching a six-month high, and as a result, many cargoes are heading to more lucrative Asian markets.

“With gas still at ~40% of the UK power generation mix, increases in the gas market have ultimately fed through to the equivalent power contracts. As a result, we have seen consistent rises since the start of the year, with the day-ahead power contract averaging £104.8/MWh in August, 77.5% higher than the five-year average.

“Looking ahead, with storage levels low, LNG spot prices at such high levels and with high Asian demand power, prices are expected to remain above the long term average. However, maintenance issues have been resolved in the North Sea, and the anticipated Nord Steam 2 could commence flows in mid-September, helping to alleviate some of the supply pressures.”


Notes to Editors

For more information, please contact: Charlotte Nelson at c.nelson@cornwall-insight.com

To link to our website, please use: https://www.cornwall-insight.com/