BY: CHRIS BARRETT
Energy prices have been even more volatile reaching further new highs. The panic that the invasion caused created an illiquid market which contributed to the massive increases we saw at the time. However, since the invasion, Russian gas has continued to flow to the West through the Ukraine, though Russian imports remain at much lower levels than the past. Confirmation by European nations that they would not be sanctioning energy imports initially helped ease market concerns and recent positive ceasefire discussions contributed to a falling market. However, in the past few days Russia’s insistence that gas and oil be paid in roubles has sparked more adverse market movement and volatility. Add to this, the continued healthy arrival of LNG and falling oil prices this has resulted in a dramatic fall in prices. So prices remain historically very high, with the ever-present threat that Russian tactics could easily have a negative impact in the future.
The high volatility (with significant within day shifts in energy prices) has caused many suppliers to remove themselves from the market or restrict what they are willing to quote, either by category of customer or length and start date of contracts. This is leaving customers with imminent contract renewals with restricted options.
Building on the update provided on options in the last addition. The speed of price change is such that some suppliers are struggling to update their out of contract rates, which are now sometimes lower than their contract rates. Therefore, when looking at imminent renewals, it may be worth checking this and holding on until such a time as the rates change. When they do change, the supplier is obliged to inform you, allowing you some time to take action. Note that this is only a temporary option depending on the speed of action by certain suppliers. The more organised ones will be changing their out of contract prices regularly.
THE FUTURE VIEW
No matter how positively we look at the news it seems highly unlikely that prices will fall back to the levels we saw even through early 2021. There have been strong commitments to move away from Russian supplied gas which will put further pressure on LNG as a source of gas. And it is unlikely that our dependence on gas for peak load demand will disappear for many years. Auditel hope that this situation, as painful as it is, will act as a trigger for more serious consideration of localised on-site generation, which will protect the customer from future pricing volatility and cost as well as improve their environmental credentials.
For businesses that cannot do much about on site generation, there are options whereby the customer enters into direct contracts for supply with remote renewable generators. Such schemes do require the customer to commit to a longer-term arrangement with these generators. These sorts of schemes give the generator long term price security. The risk to the customer is that if prices do fall significantly then the price they pay could be out of kilter with the market, though this is unlikely to be the case for some time. There are also other options available where the customer can buy shares in future renewable energy generation schemes. These require an upfront capital investment but again could prove financially attractive over time. If you would like to know a bit more about this, then please contact us.