UK Power Pricing Trends | 22 Jan. 2021
Strong winds eased the pressure on the U.K.’s power grid last week, following the strain of the previous week. The result was tumbling day-ahead pricing, which fed into the month-ahead contract; yet futures further along the curve moved higher week-on-week, reflecting the wider energy complex. Carbon EUAs – still the U.K.’s benchmark emissions future – more than pared the losses of Week 2, pushing higher amid forecasts for colder, early-February weather and a wave of dip buying by European emitters. Additionally, U.K. gas pricing pushed higher week-on-week as demand forecasts were revised upwards to reflect the icy weather expected, and the associated effects on aggregate storage levels.
UK Natural Gas Pricing Trends | 22 Jan. 2021
Weather remained the focus for gas traders and consumers alike last week, as ever-evolving temperature and wind forecasts generated volatility on the NBP. Ultimately, pricing pushed higher week-on-week, reclaiming the ground lost throughout Week 2, amid indications that early-February will arrive alongside more freezing weather. Moreover, regional supplies have remained tight, further exacerbating the price rally. Despite the Asian gas-price premium over Europe diminishing substantially since its peak, and more LNG cargoes consequently arriving in northwest European terminals, total LNG imports – although higher week-on-week – remain two-thirds lower than the 12-month average.
UK Energy Complex | 22 Jan. 2021
With scant information available to U.K. businesses regarding the U.K. Emissions Trading Scheme (U.K. ETS), and no allowances (UKAs) yet in circulation, some British businesses, including power generators, are having to turn to the EUA market to hedge their future emissions costs. U.K. emitters can still purchase EUAs to cover their 2020 emissions, although allowances must be surrendered at the end of April. However, some businesses are opting to purchase longer-dated EUAs to provide them with some degree of risk management and/or price certainty for their future business operations. As such, the U.K. energy market is still very much intertwined with the EU Emissions Trading Scheme, and gas and power prices still reflect the price action of EUAs. Therefore, last week’s rally in carbon EUAs was instrumental in the gains in U.K. energy prices, particularly forward power contracts.
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