New price records shattered at relentless pace

Tuesday 5th October 2021

You will see immediately from the wholesale graphs that prices have reached unprecedented new highs. There has been no respite in the past fortnight, with record upon record being shattered across all seasons, and with most bullishness retained across Winter 2021. There is a huge amount of risk being factored into the traded gas and power prices. A lot of this risk remains aligned to fears over Russian gas flows to Western Europe for the coming winter and associated storage constraints; this has been an underlying theme of much of the summer, but as we enter the winter season, so any additional concerns are accentuated. Alongside gas, there are renewed fears over nuclear output, and the UK’s import capacity has been severely hampered by the English Channel interconnector going off line. We have also seen coal prices at record prices, and $80+ Brent crude, a three-year high.

UK power prices have also been bolstered by the carbon trading scheme. Carbon allowances are an increasing important component of generational cost ultimately passed through to the end user. The UK started a trading allowances in May having exited the EU scheme, initially at a discount to EU costs. This has now ballooned to a 40% premium in the UK, further hitting the p/kWh paid.

The question now is whether prices will continue to rise and what the new normal will be when it comes to wholesale.