The scheduled return of the Dungeness-B nuclear reactor kept power prices suppressed in the face of early gains in their gas counterparts. System tightness caused by reduced gas flows was also partly offset in the wholesale power market thanks to consistent wind output and improved forecasts. Day Ahead was able to trade flat from Friday’s close at £41.70/MWh and the front month was able to post losses, giving up 50p/MWh down to the £41/MWh mark.
This movement began to filter down the curve as oil prices softened on the back of a stronger US dollar. More bearish sentiment flowed through the market as wholesale gas prices were appeased by a glut of LNG tankers in the UK. Winter-15 dropped to £46/MWh while Day Ahead and Jun-15 fell further, both trading under £41/MWh.
Forecasts for colder weather gave a brief boost to short-term prices, though the abundance of LNG helped meet demand and put a ceiling on prices despite restricted flows from the continent. Longer-term power contracts did firm due to news of an expected fall in US crude oil stockpiles and strong Japanese economic data, though Summer-16 still traded below £43/MWh (below the previous week’s close).
In spite of bullish activity in the wider fuels on Thursday, reports that energy analysts project a bearish outlook for Q3-15 saw prices begin tumble. The sources believe that the impact of renewable generation is not yet priced into the UK power curve, evidenced by Day-ahead power prices consistently out-performing component month averages. An expectation for Renewables to continue having a big impact (as wind generation displaces CCGT and solar power reduces peak demand) pulled down wholesale electricity rates.
These losses have been limited so far because of low liquidity (ahead of bank holiday) but improved weather and a long gas system helped drive down the near curve – Day Ahead all the way through Q3-15 available under £41/MWh.
The bearish sentiment on the near-curve should continue next week with an increase in temperatures and wind generation. This effect could be magnified if gas continues to be oversupplied with LNG and when Norwegian fields return from maintenance.
Prices further out have laboured under low liquidity so far, but this should pick up following the bank holiday. If a stronger GB Pound can alleviate the impact of rising oil and coal prices then seasonal contracts should have room to fall.