Energy Market Update - Friday 5th May 2023
In the news this week
UK government lacks a logical plan to have a clean energy grid by 2035. A new report from the Business and Trade committee, which has concluded that the Government lacks a coherent plan to achieve a clean energy grid by 2035. The government has admitted that there has been a 65% increase in planning time lines for large-scale generation and infrastructure projects since 2012. A key concern is the lack of incentive for renewable generation. Currently there is windfall tax for fossil fuel generators with a smaller tax for renewable generators. However, fossil fuel generators benefit from tax breaks for sizeable expansion, while renewable generators do not. A clear outlined plan is going to be needed to help achieve these current plans. If these plans are not made this could cause these targets to be missed and keep the UK dependent on fossil fuels in coming years, offering upward pressure to UK energy markets.
A study released recently by the energy think-tank Ember showed that the EU burned less coal this winter during the height of the energy crisis than in previous years. Between Oct-22 and Mar-23, coal-fired generation fell almost 11% year on year. This is being attributed to energy demand across the continent falling as a result of high prices, as well as total renewable energy supply also increasing. The study demonstrates that the previously feared sharp rise in coal usage across Europe was ultimately overstated, despite the continent going through the worst energy crisis in over 40 years. However, Ember have also cautioned that the relatively mild Winter-22 also helped reduce demand, and that there is no guarantee Winter-23 will be as mild.
The global gas market suffered a big supply shock when Russia reduced its pipeline gas deliveries to the Europe by 80%. However, due to the mild weather, strong LNG imports and a decline in gas demand, Europe has managed to reduce the impact and maintain relatively strong supply, though there are still some concerns going forward according to a recent report by the IEA. Currently, LNG makes up two thirds of Europe’s gas imports, but global LNG supply is forecast to increase by only 4% in 2023. Europe needs to be aware of the risks around being overly reliant on LNG imports. If Europe experiences a harsher Winter-23, low LNG imports or further pipeline cuts from Russia, market prices are likely to spike again, meaning that Europe needs to maintain high levels of investment into renewable energy, in order to further enhance energy security.
Current Market Drivers
13 LNG cargoes are expected to arrive in the UK over the next two weeks, likely offering downside to near curve gas contracts.
EDF have seen their first year-on-year gains in French nuclear generation, which is likely providing downward pressure to near curve contracts.
Rising wind generation into next week is offering downward pressure to prompt UK energy contracts on reduced gas-fired generation demand.
Planned maintenance continues across Norwegian infrastructure, limiting total flows to the UK and continent, reducing supply prospects, and offering upward pressure to near curve UK gas.
On Thursday 25th May, Nick Gauntlett, CEO of Dukefield Energy is providing a webinar on the latest energy market news and contracts advice, in partnership with Crescent Purchasing Consortium. Click here to register.