Short-term power spikes due to tight gas and light winds

Tuesday 16th July 2019

The last fortnight has seen a dramatic upturn in gas and power wholesale prices. The short-term gas market has been under pressure due to reduced Norwegian flows, coupled with low renewable power generation. As such gas demand went to 70% above seasonal norms with net storage withdrawals seen in Europe, highly unusual for the summer.

The short-term sentiment has also impacted upon Annuals with a steep increase here for October ’19 power and gas – the 2019 discount to 2020 seen at the beginning of the month has been wiped out and this is now trading at a premium to future Annuals. Emissions trading (EU carbon) had a significant impact on Annuals, with EUAs exceeding €29, an 11-year high. This increase has been prompted by Germany removing allowances from the market and also by the propose European Commission President – Ursula von der Leyen - having a more committed green agenda than Jean Claude Junker (we await this election result today).

More Annual bullishness has been provided by oil – this is firmer due to the ongoing Iran tanker issues. We have also seen a sharp upturn in the cost of coal, which whilst fairly insignificant now in the UK generation mix, still provides an indicator to general energy cost trends.