Energy prices hit decade lows in first quarter

UK wholesale energy prices levelled out at nine year lows for power during the first quarter of the year with gas prices reaching their lowest for more than ten years, according to new figures.

The ICIS Power Index (IPI) averaged £35 per megawatt-hour (MWh) over Q1, the lowest quarterly average since Q1 2007, and down 12% from the Q4 2015 average.

The fall was the sharpest quarter-on-quarter decline in forward prices since Q1 2009, reflecting market expectations that power delivered over the next two seasons will be less valuable than at the beginning of the year.

Zoe Double, Head of Power at ICIS, said: "Some older coal-fired plants closed during Q1 2016, so with less flexible supply available to the market, market participants are reluctant to sell power for winter delivery at lower prices because of the risk of shortages."

Lowest quarterly average for gas in at least 10 years

For gas, the prices for delivery the following year averaged 32.351 pence per therm (p/th) – the lowest quarterly average in at least 10 years. The quarterly average for Q1 was 12.5% below the average for Q4 2015, although the previous quarterly fall was more pronounced.

ICIS said gas-fired generation in the UK is at its highest share in Q1 for more than five years, due to lower gas prices and the cost of emissions making coal-fired generation more expensive.

The report pointed out that the UK’s energy supply is getting greener, with more gas instead of coal, but also more installed renewable generation.

Earlier this month National Grid predicted record low demand for electricity this summer, although demand for gas is expected to rise.

The grid operator forecasts summer minimum electricity demand of 18.1GW, with peak demand hitting 35.7GW.

Average daily demand for gas is expected to sit at 200 million cubic metres per day (mcm/d), while total gas demand is predicted to reach 36.5 billion cubic metres (bcm).
The price of gas is expected to be lower than the price of coal and so National Grid expects higher demand for gas this summer to fuel combined-cycle gas turbine (CCGT) power stations.

Calls for domestic price cuts

The ICIS figures prompted calls for further price cuts for energy consumers.

Although the Big Six energy firms have cut gas bills by over 5% this year, Ann Robinson, a director of Uswitch, called for bills to be reduced further.
She said that consumers had been "short-changed by token gesture price cuts".

"Given record-low wholesale costs, suppliers must do the right thing and reduce standard tariffs by a further 10%," she said.

Industry body Energy UK stressed energy companies were bringing down their prices with cheaper domestic tariffs launched almost every week. Since January 2014 the cheapest tariffs have fallen by around £200. There are now over 50 deals under £1,000 being offered by 37 suppliers operating in the market.

“Wholesale prices make up less than half of the average bill and the majority of the rest falls outside suppliers’ control so there will always be a difference between wholesale price falls and what customers actually pay,” said Energy UK.

“Suppliers are also making it quicker and easier for customers to find the tariff right for them. Almost 4 million customers switched supplier in 2015 and, currently, around 400,000 households are signing up to new deals every month.”

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