Wholesale energy prices dropping againLast updated on 11/05/2016
Rises in wholesale fuel prices in February have almost entirely reversed during March. The firmus energy Index dropped ten per cent last month to finish at 82, just above the mark it reached in January 2015.
The strengthening of the world’s main currency paradoxically helped to lower the cost of energy last month. The firming up of the dollar has a track record in reducing both the demand for, and the price of, dollar denominated commodities such as oil. Brent Crude dropped 8 per cent in sterling terms in March. The cost of electricity, coal and gas also fell for a range of other reasons.
Commenting on the March firmus energy Index, John French, firmus energy’s director of regulation and pricing added: “A new factor already impacting on global markets is an energy source which is not included in the Index. The agreement between Iran and the West over nuclear power is paving the way for the Middle Eastern state to be released from a longstanding embargo on oil exports. If and when sanctions are eventually lifted, Iran could be sending two million barrels a day into world markets. Even though that date may still be some way off, the prospect of more supply swirling into the current world glut has already hit the wholesale price of oil,” he concluded.
The cost of gas fell by 3 pence a therm on average last month despite a major reduction in flows through the Langeled pipeline from Norway to the UK. Prices were held down as rising imports of Liquefied Natural Gas largely filled the supply gap but warmer weather was also a factor, lowering demand for the UK’s main home heating fuel.
Coal is now less than half its price of four years ago. The slump continued in March as China reduced its appetite for imports of the polluting fuel. The country’s coal fired power plants are now running at only a third of capacity. This falling demand for coal is paralleled in wealthier countries where gas and renewables are increasingly used for electricity generation.
As wind, so to speak, buffeted gas powered electricity generation plants off the network last month, lower cost coal fired stations set the price for electricity. The result was a 13 per cent drop in the wholesale cost of electricity. The wind in Ireland does not blow consistently however, which in the middle of the month meant spikes in prices as more expensive generating plant was brought onto the system to replace idling wind turbines.