Energy has hit the front-page news in the last fortnight in the UK and Europe. A sustained increase in gas and electricity prices has raised concerns about security of supply and the rising cost to consumers.
European gas prices have been climbing steadily since Spring and now reached unprecedented levels. This has been driven by higher demand, due to a strong COVID recovery and a coal to gas switch in Asia, and a cold winter in the Northern hemisphere – combined with weak supply, following disruptions in the North Sea and limits on Russian production. European storages are at seasonally low levels, as the usual summer injection season saw high prices and tight supply.
High gas prices have brought coal power stations into merit in the European power sector, increasing emissions and driving EUA carbon prices up to new highs. This has led to a sharp increase in power prices across Europe. Several Governments are now taking actions to stem the increase in cost to businesses and consumers, whilst in the UK many retailers face a hit to their profitability due to the retail price cap and ability to pass high costs onto consumers. Compounding these issues, the GB power system has seen periods of extreme scarcity as a result of low wind output, and outages of gas, nuclear and interconnectors.
We have released a public market update note containing analysis of recent trends in commodity and power markets, accessible via the button below. In addition, we’ll be running a subscriber-only webinar.