Wholesale Energy Prices: Oil, Natural Gas and Electricity Between July – September 2021

Oil

Natural Gas

Electricity

Forward power prices charged ahead rising 30% over the last quarter. The annual base-load contract is now up 85% since the 4th January. The wholesale electricity market was buoyed by rising oil and gas prices, together with lingering worries over the ability of the UK power system to cover the peak-day demand call as the economy opens up.

Prices rose in response to lower-than-anticipated wind generation volumes during September, recorded at 60% lower than over the same period last year. This was also due, in summary, to:

1. Low winds speeds in the Irish and North Sea;

2. Concerns over security of supply due to delayed power station maintenance (the backlog a casualty of the pandemic);

3. The shock loss of 1 GW when the IFA-1 interconnector to France failed due to fire (set to stay down for 9 to 10 months);

4. Early closure, for safety reasons, of aging AGR-design nuclear power stations together contributed to supply availability concerns, which actually saw UK power prices trading in thousands of pounds per MWh over multiple delivery periods last month.

Past editions of Energy Highlights have already stressed reliability concerns about electricity interconnectors even using the latest, state-of-the-art technology with the UK already connected to Norway, Denmark, Belgium, and Holland, France and in a few years to be joined by further cables to Iceland and potentially Morocco.

Energy Storage in the UK

The UK supply mix entailing renewable energy, seabed inter-connectors and low-flexibility nuclear power will all be adding impetus to expanding energy storage at grid level. As the system becomes more decentralised, we should see demand evolve around distribution network assets, micro-grids and commercial sites too. In the past, the UK has relied on a centralised market with the onus on the generator to balance the system. But tomorrow could see this ‘Supply Sell’ market complemented by an offsetting ‘Demand Sell’ market with industrial, commercial and even domestic supply-interruption: demand reduction at micro-grids and battery-storage.

Hydrogen, Lithium-ion and Electricity Storage

Of the scientific fields relating to electricity storage, the most interesting include lithium-ion and the possibly understated alternative, vanadium redox-flow as such batteries offer environmental, reliability and flexibility advantages over the former.

Hydrogen is an energy carrier (not a fuel). As such it can be matched alongside other fuel cells. Hydrogen has very significant energy conversion losses along its (convoluted) supply chain however as the electricity generated to produce the hydrogen, which is then stored, then transported to source and then reconverted back to electricity before the point of use.

Hydrogen is highly electro-intensive and very expensive to produce, especially at today’s O.T.C. prices. It may well have a niche role in terms of off-peak storage for wind turbines and nuclear power stations. However, we foresee lithium and vanadium as the only realistic front runners, certainly in commercial or in any domestic setting where hydrogen’s serious health & safety drawbacks have been understated in our view.

About the Author

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.

Prospect Law is a multi-disciplinary practice with specialist expertise in the energy and environmental sectors with particular experience in the low carbon energy sector. The firm is made up of lawyers, engineers, surveyors and finance experts.

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For more information or assistance with a particular query, please in the first instance contact Adam Mikula on 020 7947 5354 or by email on adm@prospectlaw.co.uk.

Prospect is a multi-disciplinary practice with specialist expertise in the energy and environmental sectors with particular experience in the low carbon energy sector. The firm is made up of lawyers, engineers, insurance and risk management specialists, and finance experts.

This article remains the copyright property of Prospect Law Ltd and neither the article nor any part of it may be published or copied without the prior written permission of the directors of Prospect Law.

This article is not intended to constitute legal or other professional advice and it should not be relied on in any way.