Inteb acts as double blow hits UK energy supplies

As the UK energy market reels from a double threat to power supplies, an action plan has been put into place by Inteb to keep customers fully aware of the international situation as it unfolds.

Closely monitoring the crisis, Inteb’s sustainability, environmental and energy experts are currently gathering data and information for analysis and sharing it with their commercial landlord and property developer partners.

News of power supply fears first hit the headlines earlier this week, causing natural gas prices in the UK and continental Europe to reach record highs because of tight supplies even before winter begins to bite. A severe economic hit to industry and weather-induced shortages were forecast.

Day-ahead prices in the UK jumped 7 per cent on Tuesday to more than £1.65 per therm, almost treble their level the start of the year and an increase of 70 per cent since early August alone.

Then, at the same time, a massive fire at the UK-France main electricity subsea cable in Kent caused a price surge due to a loss of power capacity from across the Channel. According to the National Grid, shortages could last until the end of next March.

Natural gas prices in the UK have consequently soared by more than 18 per cent, traders calculating that gas-fired power stations will need to run harder over the coming months to compensate for the loss of imports.

At £1.89 a therm, gas prices are more than double the level they traded at just two months ago and more than five times last September’s level.

As businesses strive to get back to normal post-pandemic, questions are being asked by commerce and industry about what is the cause of these energy supply fears. How will operations be affected before demand really begins to take hold?

Concerns about tight supplies started with a prolonged cold winter last year that drained natural gas storage. Normally this would be refilled over the summer – but why has storage filling not happened?

Russia has been sending less gas to Europe. Added to this, Europe has also been phasing out coal plants in recent years, limiting the opportunity to switch fuels when prices rise. There have also been record carbon prices which made fuel switching less attractive because coal emits more carbon dioxide when burned.

Also, the UK and parts of continental Europe are becoming more reliant on wind turbines for electricity generation – but the recent still weather has reduced the wind’s contribution to the grid. This has, in the main, been backfilled by natural gas, boosting demand for the fuel.

The power market’s exposure to gas prices means everyone will eventually have to pay.

However, natural gas bill increases will not necessarily be as immediate or noticeable as, say, prices rises at the pumps when oil soars. Large industrial users are likely to experience higher energy costs quickly but many will have constrained their expected consumption in advance anyway to lock in prices.

If gas prices in the UK remain at similar levels or higher than today throughout the winter, Ofgem will no doubt raise the price cap on energy bills again.

So far, the UK has seen a sharp reduction in emissions over the past 10 years, achieved by boosting renewables capacity and replacing coal with natural gas, particularly during periods of low wind speeds. The country also operates a “just-in-time” approach to gas supplies. But while there’s more domestic production than countries in the EU, there’s far less storage capacity here.

On a brighter note, prices will not necessarily keep on rising – and the answer is in the weather. For instance, a milder winter could help quieten down the market as would wind generation.

The analysts and energy watchers mostly agree on one major point – that there’s not enough renewable capacity to keep Britain moving without gas in the energy mix to replace fossil fuels.

Members of the Inteb team are currently watching how these issues could affect clients’ operations.

With their precise knowledge of energy markets and its fluctuations, any changes in energy prices, discounts and rebates, they can source and negotiate the best deals for your business, contributing to the driving down of your costs during these times of global energy uncertainty.

Contact Inteb by phone on 0151-601 3476 or by email at [email protected]