Energy Market Update - Friday 26th May 2023
In the news this week
Europe's energy transition away from fossil fuels, with solar capacity growing twice as fast as wind capacity since 2018. Installed solar capacity has increased 88% during this time while wind capacity has only grown by 35%. In 2022, solar accounted for 24% of renewable generation while wind accounted for 26%. However, roughly 60% of this installed capacity is located in northern countries such as Germany and the Netherlands, which often has relatively low power yields compared to other areas. As a result, the next stage of growth is likely to be across southern parts of Europe with higher power yields. Spain's PVOUT has a reading of 4.41kWh/kWp and is the highest in Europe compared to 2.96kWh/kWp for Germany. Improving infrastructure in the southern areas of Europe could massively increase Europe's solar output and help the transition towards net-zero.
According to the International Energy Agency (IEA), investment into renewable energy will extend its lead over spending on fossil fuels in 2023, with new solar projects set to outpace new oil production projects for the first time. Since 2021, annual investment into renewable energy was up nearly 25%, compared to a rise of 15% for fossil fuels. Roughly 90% of that spending comes from China and richer countries, however this highlights the global divide between rich and poor countries, as fossil fuel investment is still double the levels needed to reach net-zero by 2050. Though clean energy is still moving fast, with roughly $1.7 going into clean energy for every $1 into fossil fuels. This again highlights the current push towards net-zero and the increased interest in renewables, though big changes are still needed including additional support for poorer countries to meet targets by 2050.
Energy regulator Ofgem has slashed its cap on prices following a fall in wholesale energy costs, which could see millions of British households receive cheaper energy bills from July. The new price cap at £2,074 a year for average dual-fuel use, shows a 40% fall compared with the previous cap level. However, for the average household, this drop will be roughly around 17% as they have been protected by a government scheme since Oct-22 to keep average annual energy costs at £2,500 a year. This could lead to a drop in potential demand destruction levels but is likely to have a minimal effect on UK energy markets. The Ofgem CEO stated that in the medium term, prices are not expected to fall back to pre-crisis levels. However, it does pose positive sentiment that price hikes seen last year are not expected to occur again this year, despite concerns remaining for this winter
Current Market Drivers
Production at Equinor's Statfjord gas platform in the North Sea has halted as a result of a gas leak, providing upward pressure to near curve UK gas contracts.
Wind generation is set to rise towards seasonal norms over the weekend, reducing gas-fired generation demand and providing downward pressure to prompt UK energy contracts
EDF have forecast nuclear capacity for Winter-23 to be 5-10 GW higher than last year, with 35GW available in October and 50 GW by the start of 2024, providing relief to closer-dated seasonal contracts.
28 LNG cargoes are confirmed for May-23, with 3 confirmed for Jun-23 already. This is providing downward pressure to near curve UK gas contracts.
Yesterday, Nick Gauntlett, CEO of Dukefield Energy provided a webinar on the latest energy market news and contracts advice, in partnership with Crescent Purchasing Consortium. Click here to watch the recording