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Winter 2019 energy outlook

As winter is fast-approaching, we look ahead to see what impact the colder months will have on the energy market as the demand for gas and electricity increases.

As we approach the winter months, it’s inevitable that questions arise concerning the UK’s ability to ensure sufficient supply as energy demand increases.

Each year fears of blackouts and brownouts prove largely unfounded. However, with the UK’s most significant blackout for over a decade occurring only 6 weeks ago, the focus on security of supplies is stronger than ever.

UK Gas

While renewable energy generation, particularly solar and offshore wind, has grown rapidly in recent years, the inflexible nature of renewable generation, combined with relative inflexibility of our nuclear fleet, means that gas turbines in combined cycle power stations are our main source of flexible generation, providing baseload, peaking and balancing services.

With an effective moratorium on fracking following seismic activity in Lancashire and declining oil and gas drilling in the North Sea, the UK currently only produces enough gas to meet around 45% of our total demand. The shortfall is made up from imports, predominantly via pipelines from mainland Europe but also, increasingly, from LNG shipments.

With 80% of Britain’s homes and the majority of business using mains gas and around 25% of our electricity generation using gas-fired turbines, natural gas remains a key pillar of our overall energy mix.

Further Uncertainty

While our departure from the European Union remains opaque, it still threatens disruption to UK energy prices and, raises concerns about pipelines operating from other EU Countries. While we are assured by Ofgem and Government that measures are already in place to ensure uninterrupted supplies, even in the event of a no-deal Brexit but, there will inevitably be additional risks, particularly if such a scenario occurs at the start of the winter.

Also, we should not forget that even without the spectre of Brexit, the UK has lost most of its underground gas storage capacity and severe cold weather, such as the so-called ‘Beast from the East’ that hit the UK at the start of March 2018 will put the gas supplies under strain even when the interconnectors are available..

UK gas prices have remained fairly steady, although choppy in the short term, but a number of factors could see prices jump, ranging from any concerns over interconnector security, to world events that impact LNG plants and, of course, the weather.

Also, with around a quarter of a gas being burned in power stations, any changes in gas prices have a knock-on effect on wholesale prices of electricity.

The increase of solar and wind generation in our energy mix along with the closure of more coal-fired power plants, adds further uncertainty in forecasting the amount of generation available on any given day as well as its cost. The National Grid is also under increased pressure to maintain sufficient flexible reserves of generation to avoid a repeat of the 9th August blackouts and this may be reflected in increased balancing costs, which are recovered through the BSUoS charge on bills.

How Can Businesses Prepare?

The central concern for UK businesses is uncertainty; the energy market can be notoriously volatile anyway, while a potentially harsh winter, Brexit uncertainty and the expected restart of the Capacity Market, could further confound any predictions.

While disruption to supply should be fairly unlikely, insulating yourself against potential price rises is a critical precaution. Ensuring that your house is in order now, optimising your energy usage, paying less for what you do use and potentially using on-site generation to reduce winter peak charges could all deliver valuable savings and greater surety over the winter months.

To speak to an Inenco expert about your winter strategy, email or call 08451 46 36 26.