27/11/2022
The future cost of energy.
As many of you will know, part of our commercial electrical offering is a review of clients electrical and gas costs. We are not a brokerage but we do work with 3 energy brokerages who from time to time have been extremely valuable.
One of the things that we do get each month is a brokerage report explaining the future cost of power and over the last 2 years this has become more and more unclear. He's a quick snippet:
Prices have started to rise as demand picks up with the weather being the key reason for the increase. Temperatures in the UK had been above seasonal averages for October and November but they are now set to be one degree lower than the average for December.
Demand peaks in winter and the energy generated daily can not support the grid alone, so surplus energy is needed from the stores built previously throughout the year. With UK demand picking up, this has led to withdrawal from storage across Europe and the frequency of UK capacity warnings increasing. As supplies tighten as we head into winter, industry experts have said the risk of power blackouts across the country has heightened.
Russia also threatened to restrict gas flows through Ukraine to the only pipeline still connected to western Europe from next week. Despite this only being a small percentage, any threat to the last remaining pipeline route has unsettled energy markets as the colder temperatures kick in as winter starts.
Bullish Factors (upward pressure on markets):
Temperatures to plummet in December
Greater demand and withdrawal from storage
Further outages in Norway
Forecasts of supply increases being rejected
Wind output reduction
Bearish Factors (downward pressure on markets):
COVID-19 measures announced in China
Reports of an increase in Liquid natural gas cargoes across the month
Crude
Brent crude prices have decreased and are trading around the levels at the beginning of the year, mainly due to further COVID-19 measures being announced in China with them recording their highest number of daily cases since the pandemic began.
Prices are 9% higher than at the start of 2022, but 33% lower than when prices peaked in March.
Current price standings:
Brent Crude = $85.41/bbl
Support For Businesses To Be Curbed From April
Chancellor Jeremy Hunt has said that UK households and businesses will pay much more for their energy next year as the government cuts subsidies designed to mitigate soaring gas and electricity costs. In his Autumn Statement aimed at shoring up the national finances, the chancellor said the majority of businesses would not receive extra support beyond April, arguing that subsidising their costs was “not sustainable”.
Typical households will from April 2023 will be paying almost three times as much as last year but businesses could be hit by even larger rises once government subsidies are removed. The government said that while households would receive support until April 2024, it was “not sustainable for government to continue supporting large numbers of businesses” beyond next spring.
Instead, ministers will withdraw support for most corporate energy consumers from the 31st of March 2023, after which the government will only offer “significantly lower” help for the most vulnerable industries.
“The government recognises that some businesses, such as those which are highly exposed to energy prices and unable to pass through or absorb these costs sufficiently, may continue to require support beyond March 2023,” the Treasury said. “However, the overall scale of support the government can offer will be significantly lower, and targeted at those most affected to ensure fiscal sustainability and value for money for the taxpayer.”
