Energy Market Update - Friday 10th March 2023
In the news this week
On Tuesday, the National Grid called on reserve coal-fired generations units for the first time this winter to generate electricity during a period of tight supplies, following the cold snap that is sweeping across the UK. Coal plants under the scheme have been readied for use several times this winter, but this is the first time they have actually been fired up. The extra generation capacity allowed the grid to cancel the electricity margin notice issued on late on Monday evening. However, the grid chose not to issue a demand flexibility service (DFS) requirement, which rewards consumers with discounts on their energy bills for reducing consumption at times of high demand. This news has likely contributed to the upward price action seen this week across the curve, as the weather fundamentals continue to provide some upward pressure to energy contracts.
French energy giant EDF is set to present its revised strategy for nuclear reactor inspection and repairs to its staff today (Friday), following safety authorities ordering extra checks to take account of a corrosion issue made public earlier this week. EDF owns and operates 56 nuclear reactors in France and has come under renewed pressure from safety watchdog ASN after a new corrosion crack was detected at the Penly 1 reactor in Normandy. This comes after EDF spent the last year fixing issues on multiple reactors, leading French nuclear capacity to fall to a 30-year low. The ASN have now requested that EDF quickly identify if there are any similar cases that exist on their other reactors. This news is providing upward sentiment to UK and European energy futures as if more repair works are needed at other reactors, France will likely become more dependent on neighbouring nations for power exports.
Prominent climate change advisors have warned that the UK does not have a clear strategy in place to meets its target of decarbonising electricity generation by 2035, which is threatening efforts to improve energy security. They argue that the Government has not yet provided a coherent strategy on how they plan to rapidly scaleup renewable power generation and that reforms need to be made to the country's systems for planning, consenting, and connecting new projects to the power grid. The report issued by the advisors said that swift reforms could help the UK generate roughly 70% from renewables, with nuclear and bioenergy with carbon capture and storage producing about 20% by 2035. This news may provide some upward sentiment to further-dated seasonal contracts, as it raises fears that the UK may still be reliant on imported gas beyond 2035.
Current Market Drivers
All 4 French LNG terminals, as well as 11GW of nuclear generation, remains in turmoil as the nationwide strike action continues. While the market seems unphased, the potential for an upward movement remains.
Substantial increases in prices for all future trading periods for gas are being witnessed as the market experiences buying pressure as we approach April contract renewals.
A total of 25 LNG cargoes are to reach UK shores by the end of March, which should moderate storage concerns and potentially see a return to the bearish movement experienced in the gas market recently.
A spike in wind generation over the weekend and into next week, followed by a return to seasonal norms is predicted to decrease gas-for-power demand, easing pressure on prompt energy contracts.
Prospects for two new gas fields in the Southern North Sea have increased following structural change in long-term gas prices, which may provide downward pressure to much further-dated seasonal contracts.
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