Record highs seen on short-term market

Wednesday 20th January 2021

As has been indicated in earlier communications this month, there has been a lot of volatility in gas and power pricing, particularly on the short-term market. The combination of high gas prices (driven by a buoyant Asian LNG market), low renewable output and a lack of conventional power generation has meant markets have surged. Record Day-ahead power and Day-ahead hourly prices have been recorded. Whilst there has been some correction in prices since, curves have stepped up dramatically in the last month from where they were during late summer and autumn 2020. The slump in prices followed a change in weather patterns, with milder, windier weather meaning gas demand fell. There is a degree of uncertainty about forecasts, so some risk is built into month-ahead prices due to a possible cold snap to come.

In the wider energy complex, we have also seen bullishness across carbon and coal. Oil also seems more robust too due to a Saudi commitment to cut production for the next two months.

The upturn comes conversely when lockdown measures are in place and ultimately less gas and power is being consumed commercially. The efficacy of the vaccine programme and next actions such as Joe Biden’s stimulus package in the States should dictate energy cost movements in 2021.