Wholesale energy prices dropping again

Wholesale energy prices dropping again

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.

 


 

 


Last updated on 11/05/2016

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