2024 Energy Highlights: Electricity

electricity

Our Energy Economist, Dominic Whittome, shares his Energy Highlights Report on oil, natural gas, and electricity prices in 2024. Delving into the dynamics of Crude Oil, petrodollar, Natural Gas, and Electricity, this is the fourth of a four-part blog series.

Electricity Prices and Market Trends

As recently as November 1st last year, forward power prices were traded at party to gas prices, which were £115/MWh and £115/therm apiece. However, the spark spread narrowed as electricity prices weakened after “reassuring” medium-term scenarios published by the energy system operator, ESO National Grid.

The market has remained comparatively flat for the past two months, although power prices were also volatile through April and May. At one point, the annual contract climbed by 30% within three weeks.

The wholesale price for a one-year base-load supply currently stands at £85/MWh or 8.5 p/kWh. To put that price into perspective for a typical small-to-medium-sized industrial facility, one should consider the full array of network charges and government surcharges that are levied on top.

Breakdown of Additional Charges

These include a specific storage cost which scarcely registered a few years ago as it was so small. But has soared amid higher volumes of intermittent solar and pulse wave power wash onto local distribution grids so at least 1.25 p/kWh is now payable extra for the Balancing Services Use of System (BSUoS) charge; 2.5 p/kWh then must be added for the Distribution Network Use of System (DNUoS) charge itself plus another 1.5 p/kWh for the high-voltage Transmission (TNUoS) charge. All three of the pass-through network charges are regulated and they have also risen with inflation.

Climate Change Related Levies and Final Consumer Pricing

In addition, six separate climate change-related levies add 5.75 p/kWh, taking the running total to 19.5 p/kWh. This one must include the cost of shaping and delivering the power, profiling, and risk management, adding circa 2.5 p/kWh. A margin for the supplier in question of 1 p/kWh +/—brings the final bill to circa 23 p/kWh before V.A.T.

This 23 p/kWh example contrasts with the 13 p/kWh to 18 p/kWh cost recorded by Eurostat for other customers elsewhere in Europe and compatible rates for US businesses below 7 p/kWh or in China below 3 p/kWh.  

Smaller and medium-sized UK industrials that do not qualify for the rebate involved will then pay the EII surcharge, which covers the cost of providing the Energy Intensive Industries Rebate to the qualifying, larger energy-intensive users, making it a ‘climate levy of sorts’.

But good news at least in that wholesale power prices have continued to decline  generally since December 2022, before which base-load prices were stubbornly high, above £150/MWh for most the time, at times over £400/MWh, for a full 18 months.

Future Outlook and Grid Zero Initiatives

UK annual power demand is now slated to increase from 300 to 360 TWh by 2030 amid the deadline set for Grid Zero. This 20% increase in demand will possibly coincide with all the UK’s reactors, bar Sizewell shutting down for good. So we could still see renewed pressure on power prices and network costs in the intervening years in front of us.    

Dominic Whittome

Dominic Whittome is an economist with 25 years of commercial experience in oil & gas exploration, power generation, business development and supply & trading. Dominic has served as an analyst, contract negotiator and Head of Trading with four energy majors (Statoil, Mobil, ENI and EDF). As a consultant, Dominic has also advised government clients (including the UK Treasury, Met Office and Consumer Focus) and private entities on a range of energy origination, strategy and trading issues.

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