Eneco market reports early March 2022
Russian conflict with Ukraine
On Tuesday, Biden announced a cease of all imports of oil and coal from Russia following discussions with close allies and partners in Europe, recognising that it would be less feasible for some to apply the same sanctions. The UK has announced it will also cease imports of Russian oil and oil based products by the end of 2022. There are no direct imports of gas from Russia, and it is estimated that around 4% of UK import will have originated from Russia.
As Russian energy forms some 40% of European supply it is unlikely Europe will apply similar sanctions at this stage, although concerns were expressed that Putin might use this to retaliate against sanctions being applied. That being said, this is a key revenue for Russia and it is felt supply will be safe for the time being.
Concerns have been raised regarding supply from Gazprom, the Russian state-owned supplier, should further sanctions be applied. For the time being the general advice is, that no matter what the political/humanitarian sentiment; a contract is a contract and legally binding with all the consequences of breaching it. It is worth remembering that business customers do not have the same protections as domestic, and a supplier is not obligated to supply them. If Gazprom are unable to trade for financial reasons or UK government intervention it will be a Force Majeure situation that will alter the playing field but basically until that happens you are essentially bound to the contract. We have been made aware that customers have been approached by some third parties claiming they need to sign a new contract to replace their Gazprom supply. At this stage this is not correct. We are monitoring the news and seeking advice and will update those who may be affected as and when we have more information.
Targeted Charge Review (TCR)
On the 1st April 2022, the way in which Network Operators recover their costs from suppliers will change, as part of Ofgem’s Targeted Charging Review (TCR).
As a result, the distribution of these network charges will partly shift away from Unit Rates and into Standing Charges. Those on flexible contracts will see these changes from their April invoices onwards. Those on fixed contracts are likely to see these increases reflected in renewal prices.
UK and European market volatility continues amidst the ongoing conflict between Russia and Ukraine, with markets seeing significant spikes, dropping and spiking again reaching highs in excess of 500£/MWh on month ahead. For the moment, the energy sector has been exempt from sanctions against Russia, although some restrictions have been advised. The market remains uncertain with many suppliers withdrawing price books temporarily, affecting some upcoming renewals. There is concern at offering quotes which may be based on a short-term spike and suppliers are concerned pricing under these circumstances could be unfair.
Wind generation throughout February delivered some 36% of supply as opposed to around 24% in January. Nuclear output from EDF was downgraded for 2023, with unplanned maintenance outages having some impact. Overall, however, the UK was a net importer from France with some 1GW delivered each day in the latter part of February against 259MW in the first half.
Temperatures have continued to be mild and overall have been seen to be above seasonal norms.
- On 6 March maintenance will take some 660 MW of capacity offline at the Heysham nuclear plant until 9 April. A 506 MW restriction at another reactor at Heysham is expected between 9 March and 17 July.
- During March another 908 GW of French nuclear capacity will come offline for maintenance lasting at least a month, meaning UK supply is likely to be called upon more frequently.
- The T-1 Capacity Market (CM) auction cleared at a record price of £45/kW/year – the highest ever recorded. CM participants are paid to ensure power assets are available at times of system stress to ensure security of supply. Outages at several nuclear plants and the removal of the Severn Power and Sutton Bridge combined cycle gas turbines from the process reportedly lifted the clearing price. At least 13 battery storage companies had assets cleared, up from just two at the previous auction.
- From the 15th of March the full 1.4 GW capacity will become available on the North Sea Link power interconnector between the UK and Norway, when the 350 MW currently offline is restored. Commercial operations on the North Sea Link started on the 1st of October last year and since then the UK has imported 654 MW on average each day. In the last week of February power flows on this link were consistently close to the current maximum capacity of just over 1 GW.
As with electricity markets, gas prices skyrocketed in early March with prices exceeding record levels of 700p/th on some days. Currently gas sits between 400 and 500p/th and continues to remain high whilst traders navigate the impacts of any sanctions being applied along with the ongoing conflict around Ukraine.
Since the invasion launched physical Russian gas flows via Ukraine have increased, with volumes delivered through this route and into Slovakia at around 80mcm/day since the 25th – up from an average of 41mcm/day this year prior to that date, with some analysts suggesting the rise has been driven by buyers that hold long-term supply contracts with Russian producer Gazprom increasing off-take nominations through those contracts, rather than Russia itself actively pushing more gas into Europe in an attempt to mollify Continental anger and anxiety.
LNG deliveries remained high and accounted for just over a fifth of the UK total whilst pipeline flows ticked higher. Day ahead prices for gas sat at around 188p/th before the price gently rose and then ballooned over the last few days.
This morning, Brent crude, an international benchmark, dropped more than 17% at one point after a statement made by the United Arab Emirates which stated that they favoured production increases and will be e