Energy Saving

What does winter have in store for the energy markets?

Posted on 14 October 2019
By Ropa Manyanhaire
Ropa Manyanhaire
Client Portfolio Manager

Ropa is a key member of npower Business Solutions, Energy HQ’s award-winning Optimisation Desk in her role as a Client Portfolio Manager. The Optimisation Desk provides risk management services by assisting customers with developing their risk policies and hedging strategies, while monitoring market positions, understanding the latest market fundamentals and executing transactions effectively.

It’s that time of year again when we get asked by our clients what the market will do over the winter season.

Of course, we don’t have a crystal ball and are not able to predict with absolute certainty.

But what we can do is look at the key drivers and assess the political climate, historic events and other factors to assemble possible scenarios.

Then we pull all this together in our Winter Outlook report, which is available now to download

Weather influences from the sun to the sea

Perhaps unsurprisingly, a key determinant of winter gas and power prices is the weather.

This year, we’ve looked at a number of variables including sun spot activity (low levels correlate with increased chance of cold weather), Arctic sea ice melt and its impact on the polar vortex, jet stream influences and the likelihood of hurricanes.

In short, the picture points to a colder than average winter overall. But obviously things can change, so this is not guaranteed.

Gas levels healthy

The good news is that we’re starting the season with good levels of gas storage, so we shouldn’t be at the mercy of highly-competitive markets if cold weather increases demand in the Northern hemisphere. At least not for the early part of the winter season.

But with the current political turmoil, other factors are likely to have a far greater influence on prices.

Political influences

Brexit of course, and we are obviously waiting on tenterhooks to see how that plays out.

We’re also closely watching developments in the US/China trade war and its impact on commodity prices.

And we are awaiting a decision from Denmark on the route of the new Nordstream 2 pipeline, which will bring more gas to Europe from Russia.

If Denmark refuses to allow the pipe to cross its territory, then Gazprom will have to take a longer route and the pipeline may not be ready as planned in Quarter 1 2020, which could push gas prices up.

Managing non-commodity charges

The wholesale price of gas and power aside, a large percentage of the overall price UK consumers pay is made up of non-commodity charges.

Currently, being flexible around how and when you use energy has the potential to reduce a key element of these – in particular transmission costs.

Although Ofgem is currently reviewing how National Grid calculates its Transmission Network Use of System (TNUoS) charges, until 2021, the current Triad methodology remains.

Triad management can still save ££££s

This means if you are able to reduce your consumption during suspected periods of peak demand on the system, then you could potentially save thousands in TNUoS charges.

(To recap, Triads are three non-consecutive half hours of peak national demand between 1 November and the end of February each year, as calculated retrospectively by National Grid.)

The trick is knowing when these peaks are likely to occur, especially since TNUoS charges can be as much as £60,210* for every megawatt consumed during Triad periods.

That’s why the team that operates our Triad Warning Service scrutinises all the variables to forecast potential Triad periods for you.

This service is free to npower Business Solutions (nBS) customers, and is also available to non-customers. For more information, please contact Energy HQ (see below).

Our Energy HQ Team is also on hand to help you devise an effective Triad management strategy. You can contact them through your Client Lead (for existing customers). Alternatively, you can get in touch via nBS@npower.com or by calling 0800 193 6866.

* Source: Gross Half-Hourly demand tariff for the London area, Forecast TNUoS Tariffs for 2019/20, National Grid

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