UK gas and power prices hit two year highs, but soften as system copes with winter


moneyUK power prices in the first three months of 2017 averaged almost a third higher than the same period a year earlier, according to latest analysis from pricing firm ICIS. Gas prices for delivery over the next year were up 42%.

However, longer term prices began to fall from February as market fears over winter capacity and gas storage issues receded.

Concerns over generation capacity had driven up power prices across 2016, according to ICIS. That trend continued into 2017 with the ICIS Power Index (IPI) average over Q1 2017 up 32% year on year to £46.192 per megawatt hour (MWh) – the highest quarterly average since Q4 2014.

Meanwhile, ongoing technical issues at Rough, the UK’s biggest gas storage facility, influenced gas prices, driving them to average 46.071 pence per therm (p/th) over Q1, the highest since Q2 2015, according to ICIS.

However, the firm said both the power and gas systems’ ability to cope with these challenges had reassured markets with longer-term contract prices softening from February.

Furthermore, the French nuclear fleet is now back online, and two damaged interconnectors have been returned to full capacity, adding system headroom and dampening prices.

The final Q1 power value, on 31st March 2017, was £45.283/MWh, a rise of 33% from 31 December 2016. Meanwhile the value of gas delivered over the next calendar year rose by 36% to finish at 43.175 p/th.

For next winter, ICIS suggested the low clearing price of the early capacity auction, at £6.95/kW, might have implications for wholesale power prices as it may be too low to incentivise old coal plant operators, already struggling with spreads.

The firm said longer term gas price forecasts remain bearish.

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