UK Energy Pricing Trends - 14 May 2021

UK Power Pricing Trends | 14 May 2021

A sharp drop in wind-generated power, in addition to reduced nuclear output caused by the maintenance at the 1.2GW Sizewell B plant, lifted UK day-ahead prices significantly higher last week; peaking at almost £85/MWh on Friday, the highest in over a month. A tight gas market dynamic further supported power prices, both at the spot and futures level. The month-ahead contract soared more than 11% on the week, receiving an additional boost by the largest weekly gains in carbon EUAs since February and an uninspiring week for gas reinjection – seasonal power contracts were supported to a similar degree.

UK Natural Gas Pricing Trends | 14 May 2021

Local Distribution Zone (LDZ) offtake, i.e. local heating demand, fell almost 30% last week as average temperatures rose sharply across the UK. However, spot and short-run prices failed to trim any recent gains as wind turbine output and Norway-to-UK gas flows fell by a third. The supportive, short-run supply-demand dynamic met a bullish energy complex, with carbon EUAs and coal extending gains and lifting seasonal gas contracts considerably higher. Further supporting prices was a decision by Russia to, again, wave an opportunity to book additional pipeline capacity into western Europe, as well as another week of lacklustre European gas storage reinjection.

UK Energy Complex | 14 May 2021

Energy prices across Europe and across markets failed to escape the headwinds generated by carbon EUAs last week. The European carbon benchmark pushed 12% higher week-on-week amid soaring gas prices and substantial speculative interest. However, with the UK ETS due to go live on May 19th, some indicators arose suggesting that EUA prices may have climbed too high. The UK ETS authority stated that the Cost Containment Mechanism (CCM) – used to manage excessively inflated or depressed UK carbon allowance (UKA) pricing – would come into effect if the 3-month average price of UKAs surpassed £44.74/tonne - £4/tonne less than where the Dec21 benchmark EUA closed the week on Friday 14th May. Nevertheless, carbon EUAs still posted significant gains last week, breaking through €56/tonne for the first time.

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