Gas and power prices surge – take action
The Winter 18 gas and power contracts are up by 52% and 50% respectively in the last year. The following seasons have also risen, however not by as much. Winter 19 gas and power contracts are 34% and 38% higher year-on-year.
If you’re on a fixed contract, all is not yet lost, though we’re urging you to act quickly.
A clear impact of the price rises is that gas and power for next year are much more expensive than a year ago. However, next year’s prices, and the year after that, for gas and power are still at a discount.
The market remains in a heavy period of backwardation. This is when contracts for a commodity are cheaper in the future than they are for periods closer to delivery. This isn’t because the market expects prices to be lower in the future, but largely due to the market pricing for current supply shortage levels.
Gas remains in high demand, partly because of the cold winter and the earlier effects of the ‘Beast from the East’ depleting storage reserves. Injections this year have been strong but may not be enough to reach the highs from last year.
Another factor at play is that gas prices elsewhere in the world are much higher. This is encouraging those with the ability to move gas to higher price destinations. The recent market rises have been substantial, but have only returned prices back to where they were trading four years ago.
Furthermore, it’s only the front seasonal contracts that have risen to this elevated range. The front Winter gas contract is holding between 65p/th and 75p/th, with the Summer market range between 56p/th and 66p/th. If you haven’t fixed your October 18 start contracts yet, don’t delay any further.
What’s the risk to your energy bills?
Even if the market only moves to the middle of the above stated ranges the wholesale element could still increase significantly.
If the above curve flattens in line with the longer-dated contracts moving up to the range that prices were at just four years ago, you could be hit with a further 20% price increase. The below table outlines how your annual electricity spend would increase if your business were hit by this rise:
Current annual electricity spend | |||
| Contract start date | £10,000 | £100,000 | £1,000,000 |
1 April 2018 | £10,057 | £100,573 | £1,005,725 |
| 30 August 2018 | £11,412 | £114,122 | £1,141,219 |
Further 20% rise | £12,483 | £124,826 | £1,248,258 |
The shortage now is partly due to the low storage levels seen at the end of winter, which has prompted substantial injections. However, structural problems remain, particularly in regard to a lack of UK storage capacity. Dutch gas production will continue to decline, as will supply from the North Sea. The ongoing worldwide transition from coal to gas will also support demand. As a result competition for gas is here to stay, encouraging higher gas prices for the UK to attract sufficient supply.
Wholesale costs for suppliers have risen significantly in the last two years. Many gas and power contracts are at record highs, after prices accelerated their move higher earlier this year, and again during August. These increased costs will be passed on to consumers in the form of higher bills, with suppliers paying more for their energy at a wholesale level.
It’s time to take action
EIC can help you manage these price rises. Back in April, our energy experts advised businesses to fix their October 2018 contract starts immediately for 24 months. Those that followed our advice at the time saved themselves 42% on their wholesale gas cost and 34% on their wholesale electricity cost, compared to what they’d be paying now.
How we can help you with energy procurement
Here at EIC, we pride ourselves on our market knowledge and giving timely advice to our clients. We can help businesses of all sizes to find the right energy contracts for their needs.
If you’re a larger energy user, we can help you with fixed price energy procurement to help you secure prices and provide budget certainty. We’re also on hand to help you with flexible energy procurement, should you find fixed contracts too restrictive; we can help you take advantage of a volatile energy market and make sure you capitalise on market rises and falls. Our aim is to maximise contract flexibility whilst minimising your costs.
We can also help you budget effectively for your energy costs by providing year-on-year price projections for the next five years with our Long-Term Price Forecast Report.
To find out more about our energy procurement services, and how we can help you find the right contract for your business needs, call us on 01527 511 757 or email info@eic.co.uk.
