BY CHRIS BARRETT
Energy prices have continued to rise, continuing a trend that started back in March 2020. At the moment though, they have not reached the previous high point back in Sept 2018 but they are getting closer. Although there is a possibility that prices may exceed this, historical precedence suggests that this is more likely to be a tipping point. Of course the big question is: if and when this point will be reached? This has significance to customers who still have to make a decision for contracts ending this year.
At the moment, the main drivers of price are short term supply and demand which is driven by weather in the UK. Cold weather increases demand and sunny or windy weather improves supply. As we enter the summer period, we should hope that this will favour a fall in prices. However, at a more macro level, energy prices are affected by commodity markets such as oil, carbon and coal.
The oil market affects the supply of Liquid Natural gas which we use for marginal energy generation in the UKL. LNG is a global commodity and if demand increases elsewhere then deliveries can be redirected away from the UK, pushing prices up.
The demand equation though is driven by economic factors. At the moment China’s demand is increasing which supports oil price increases, whereas the threat of the crisis in India is having a suppressing effect.
Carbon prices are more affected by geopolitical factors. Carbon is traded in trading schemes which are a primary tool for governments encouraging major businesses to reduce emissions. The threat of climate change is not going to go away so we do not expect carbon prices to fall in the near future.
Finally, though coal is no longer the primary fuel of this generation particularly in the UK, it remains a key element of the fuel mix to meet peak demand and so continues to play a part in price outcomes.