How will the wholesale price of electricity affect your energy costs?
A dramatic week for the power market
Your wholesale power cost makes up just under 45% of your electricity bill. The rest is made up of your non-energy costs (NEC’s). Winter is always an eventful time for the wholesale power market but this week was particularly volatile. Spot gas prices surged on Tuesday 12th December 2017, with prices reaching up to 90-100p/th in the morning. This was primarily due to an explosion in Austrian gas hub Baumgarten, which caused Italy to declare a state of emergency, an unplanned outage in the Forties pipeline in the North Sea, Outages in Norway, including the gas field Troll and the low temperatures experienced in the country.
Since Tuesday afternoon however, the panic settled and prices lost most of this risk premium priced in, with panicked sentiment reducing and supply from Norway returning after outages. Additionally, the Austrian gas explosion was resolved by late Tuesday, with all main arteries supplying neighbouring countries from Austria's main gas pipeline hub back online.
Eyes on the pipelines
The Forties pipeline system is pumps North Sea oil and gas to Britain and is a major delivery route for getting gas produced offshore to the UK. The outage is currently expected to last c.3 weeks but this will be confirmed in the coming days. The crack mainly affects an oil pipeline, however more than 80 platforms producing both oil and gas will have to suspend production. This will cut about 450,000 bpd of oil supply (representing almost 40% of North Sea oil production) and around 40mcm/d of gas supply, reducing the UKCS production forecast from c.120mcm/d to c.80mcm/d. With the Forties pipeline outage potentially lasting several weeks, supply through interconnectors, storage and LNG will play an important role in the UK’s power price over the rest of winter.
How will the wholesale price of electricity affect your next renewal and bill?
Your power price is determined by a number of factors, including weather, fuel availability, cost of coal and carbon, imports, interconnectors, oil and exchange rates. This directly affects the electricity price offered to you by suppliers because your price reflects the wholesale power price on the day we quote you. Read our handy guide to understanding your power costs.
Practical ways to manage your power costs
- Sign up to Market Insight to keep up to date with changes to the wholesale power price and the drivers behind these rises.
- Review your tariff to determine whether it’s worth fixing components of your energy bill.
- Consider your consumption and where you can flex. As prices continue to rise, flexing your energy through schemes like capacity market and demand side response will become a key part of energy strategy.
Watch our live Power Costs update
Sign up to our Talk Power webinar on Power costs on Wednesday 20 December at 11am where James Chaplin our Wholesale Market Analyst will present the latest market updates and how they may impact your business.