The UK’s two largest political parties have proposed taking back control of energy prices at a time when they have the least power over them.
The opposition Labour party plans to create publicly-owned energy companies and an “emergency price cap” on household energy bills, according to a leaked draft version of its manifesto.
Labour declined to comment on the leaked document with a “clause 5” meeting to scrutinise the draft manifesto today.
A UK energy price cap based on wholesale markets could still result in substantial changes to tariffs, especially if the 2016-17 winter’s price spike is repeated.
The UK’s Conservative Party, which polls put on course to win the upcoming general election, has proposed an energy price cap to be set by the regulator. The cap is likely to be based on prices at the UK’s NBP gas hub, a trading point for wholesale gas.
Developments at France’s smaller TRS gas hub this winter have provided some good parallels with the UK’s NBP, one of Europe’s most liquid markets.
The TRS was — in my view — Europe’s most exciting market, with prices responding well to the fundamental drivers of supply and demand. It also delivered some interesting examples of how European hub pricing might operate as global LNG supply increases, along with the potential for more volatility in prompt prices.
The extension to Rough’s injection unavailability until at least the end of June was priced into the NBP second-quarter 2017 market quickly, but the ripples along the curve have been much smaller.
Centrica plans not to have any obliged capacity for the 2017-18 storage year and said last week that it would update Ofgem as part of a consultation process.
Much of the focus was on the NBP second-quarter 2017 contract, understandably given that Centrica said explicitly that injection services would not be available in this period.
But reading last week’s update at the same time as December’s consultation document paints a much bleaker picture for the future of Rough. Continue reading
A depreciation typically pushes up the cost of imported goods, but this is not the mechanism at work in UK wholesale gas prices. While the UK is a net importer, especially in the winter, most of the gas arriving is linked to NBP prices and denominated in sterling.