Outlook – May 2018
We have a very complicated set up for electricity & gas prices this year. On the one hand we were expecting the I-SEM electricity trading market to launch this month and we where holding off on any procurement recommendations until we saw what effects this would have on prices. Now this has been pushed back 6 months with little notice. We also have had a very cold winter which has hammered gas storage supply and as a result pushed gas prices much higher. Gas prices are still not coming down as they stay stubbornly high due to the need to replenish depleted storage. Indeed, May-18 gas reached its highest price since February 2017, hitting 52.2p/th. To add to this we are also seeing higher oil prices due to Middle East political tensions which also tend to pull gas prices higher.
In the graph below, you can see average gas prices traded in the UK p/Therm. Prices where v low in 2016 and ‘lowish’ in summer 2017 but have climbed from there.
So where do we go from here? Well it needs to be borne in mind that nobody can predict the future with variables like the weather and the middle East involved. To add to this, I-SEM is another unknowable though we have a new launch date now in Oct-18.
For those of you who need to buy electricity and gas soon, fixed contracts look v expensive right now. We would not recommend those unless certainty is much more important to you than price. Our preference is to wait out the high prices and wait to see value in the market before looking at fixed contracts. If we see a big dip in prices this summer (a big if) then we would be interested in looking at fixed rates then.
March much colder this year than 2017
‘Degree days’ – In Ireland are usually set at 15.5C and is the temperature below which buildings need to be heated. The figure below give you a good indication why your heating bills are much higher this year than last. It has been a double whammy for clients this year, higher energy rates and the need for more heating.
Met Eireann figures for Dublin airport,
2018 Avg temp Celsius 5.3 3.4 4.3 8.2
2017 Avg temp Celsius 5.7 6.2 7.7 8.0
2018 Degree days 316
2017 Degree days
The remarkable fall of coal.
From late evening on the 5th April, the UK saw its second ever 24-hour period without any coal-fired power being produced since coal-fired generation started in the 1880s.
The UK has had an energy revolution in just 5 years. Coal is down from 42% to 7%. Renewables are up to 23% from 10%. Non-fossil fuel generation up to 47% from 30%. A switch to Gas is the main driver behind the fall of coal but wind power/solar have also made a huge difference. Total electricity consumption is also down due to improved energy efficiency of which LED’s have been a major contributor.
I am sure many of the readers of the newsletter are old enough to remember the famous miners strikes in the UK when Prime Minister Margaret Thatcher defeated the unions led by Arthur Scargill.
It was a defining moment in British industrial relations, and its defeat significantly weakened the trade union movement. The strike kicked off when the government announced on 6 March 1984 its intention to close 20 coal mines, revealing a longer term plan to close over 70 pits. Scargill claimed that the government had a long-term strategy to destroy the industry by closing unprofitable pits, and that it listed pits it wanted to close each year. This was denied by the government at the time, although papers released in 2014 under the thirty-year rule suggest that Scargill was right. From the graph below you can see that at one stage 1.2m people where employed mining coal in the UK.
Record breaking Saudi solar farm announcement
Saudi Arabia backed by the Softbank group announced that it was going to build a new solar farm of 200GW size that would be more than 100 times bigger than any existing solar farm. To put this in perspective, this would have the output at about 36 times average daytime Irish electricity load. It may be one step closer to building a Supergrid to get around one of the main problems with renewables – intermittency of supply. I will produce a video on the Supergrid soon to explain more.
Are big companies like Google and Apple really on 100% renewable energy.
You may have seen announcements from big companies such as Google and Apple that they now run on 100% renewable energy. Is this accurate? Well not really. They still run on the same electricity supply as the rest of us but they rely on what is called Power Purchase Agreements, or PPAs in order to make this claim. This allows them to say they are buying 100% renewable energy by matching their electricity consumption with renewable energy purchases through PPAs. But there is obviously a difference between being powered by renewable energy sources — which would essentially require onsite generation wherein renewable electricity generated from a project is actively directed through a separate connection point to the source — and matching electricity consumption with renewable energy PPAs. Nevertheless, it is a positive development. For example, Google’s PPAs have already led to over $3 billion in new renewable capital investment around the world.
The next stage now is that some renewable energy companies will start to offer PPA’s to smaller companies than the tech giants. Vattenfall in the UK for example has started offering Onshore Wind PPAs To British Businesses From As Low As 1 Megawatt.
World energy outlook
Oil prices have been acting strongly due to a combination of Geo political risks (Venezuela, Iran, Syria etc) and the OPEC cuts finally getting traction. The cold weather everywhere also pushed energy demand higher around the globe.
Irish Wholesale electricity prices
The avg SMP price in April was 5.7 c/kWh thankfully down from the v high March figure of 7.06 c/kWh. See green 2018 line in graph below. You can see how prices where v low historically in 2016 but right now SMP has climbed back into the middle of its range. Hopefully, we will see better temperatures soon so gas prices can ease back and pull the electricity price with it.