As the warmer summer weather finally arrives, in previous years this would naturally lead to a dip in the energy markets as less demand is placed on the networks for heating.
However, following the market lows of the Covid-19 lockdown period in 2020, several concerning elements are at now play forcing the energy markets to highs not seen for years. The extended period of cooler weather throughout May meant that during the beginning of the season when the energy networks should be recharging the countries supply ready for winter, these stocks were being used up as quickly as they were injected creating fears of potential shortages this coming winter. Combined with low storage and capacity concerns across Europe, carbon price sensitivity in Germany (who are heavily dependent on coal) impacting supply and demand, and of course prices right across Europe, leading specifically to vast increases in electricity costs in France who as Germanys neighbours, are exporting high levels of electricity from their networks to support Germany as a result. Concerns over the third Covid wave sweeping across Europe, very few LNG (liquefied natural gas) tankers arriving at UK ports, increased demand for commodities in China, unexpected or extended periods of planned repair and shutdown in several Norwegian and offshore refineries and Russia’s failure to aid supplying any gas into the European markets in June (political games) all combining to create the perfect storm.
Businesses who have energy contracts renewing at the current time face the prospect of entering a fixed rate contract at todays inflated market prices, or gambling that these issues will resolve themselves over the coming months and move onto a short period of expensive deemed rates in the interim, before hopefully signing at a more reasonable unit cost soon, but many experts and analysts are forecasting a highly turbulent market until at least the end of 2021!
All of this comes on top of the first stages of the Targeted Charging Review (TCR) which is seeing incredible increases to the daily standing charge elements of electricity contracts, most notably on Half Hourly meters and large supplies.
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