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Electricity price predictions

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Mars
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Posted by: @jeff

Gas price continues on a downward path for now at least

Screenshot 20221017 125123 com.android.chrome

Do you know what wholesale prices need to drop below in order to fall below the current imposed tariff cap? Is it likely that by April/May there’ll be a chance that tariffs fall below 30p/kWh for electricity?

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Transparent
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Posted by: @editor

Do you know what wholesale prices need to drop below in order to fall below the current imposed tariff cap? Is it likely that by April/May...

I don't think we should be waiting for the Government or the energy industry to solve issues by April.

That is, in any case, the date on which all DNOs commence their new RIIO-ED2 licence contracts as required by Ofgem. During April BEIS will already have enough problems trying to keep up with what the DNOs are doing.

The better solution is to push now for Nodal (Locational) pricing to be implemented. That incentivises Energy Suppliers to get moving with regional-based ToU tariffs.

If they don't (or won't) then the RIIO-ED2 contracts allows for 3rd-party community energy organisations to offer local electricity cheaper. Moreover there are provisions for them to be assisted by the DNOs to do so.

Ofgem's suggestion that Nodal Pricing be left on the back-burner until the end of 2025 was made before the energy crisis hit. That timescale needs rapid re-evaluation!

This post was modified 2 years ago by Transparent

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Jeff
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Posted by: @editor
Posted by: @jeff

Gas price continues on a downward path for now at least

Screenshot 20221017 125123 com.android.chrome

Do you know what wholesale prices need to drop below in order to fall below the current imposed tariff cap? Is it likely that by April/May there’ll be a chance that tariffs fall below 30p/kWh for electricity?

I think it is already guaranteed that the Ofgem Price Cap will be above 30p kWh in  April unfortunately. The hedging of energy by suppliers means a higher price is already locked in and this drives the April cap. 

The work by government to cap the the cost of electricity on the older renewable contracts will help going forward, as will the EU work on capping the spot price of Russian gas. 

Removing the Energy Price Guarantee should encourage people to use less energy, ultimately also reducing the per kWh cost as well. 

 


   
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Jeff
 Jeff
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Posted by: @transparent
Posted by: @editor

Do you know what wholesale prices need to drop below in order to fall below the current imposed tariff cap? Is it likely that by April/May...

I don't think we should be waiting for the Government or the energy industry to solve issues by April.

That is, in any case, the date on which all DNOs commence their new RIIO-ED2 licence contracts as required by Ofgem. During April BEIS will already have enough problems trying to keep up with what the DNOs are doing.

The better solution is to push now for Nodal (Locational) pricing to be implemented. That incentivises Energy Suppliers to get moving with regional-based ToU tariffs.

If they don't (or won't) then the RIIO-ED2 contracts allows for 3rd-party community energy organisations to offer local electricity cheaper. Moreover there are provisions for them to be assisted by the DNOs to do so.

Ofgem's suggestion that Nodal Pricing be left on the back-burner until the end of 2025 was made before the energy crisis hit. That timescale needs rapid re-evaluation!

Any plans to launch a 3rd party community energy company in your region? I think you would be great at it.

Heard any news about any pilot nodal tariff being launched? Anything from Octopus about trialing a nodal version of their agile tariff?

Any DNOs further ahead in their thinking and plans for nodal support? 


   
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Posted by: @editor
Posted by: @jeff

Gas price continues on a downward path for now at least

Screenshot 20221017 125123 com.android.chrome

Do you know what wholesale prices need to drop below in order to fall below the current imposed tariff cap? Is it likely that by April/May there’ll be a chance that tariffs fall below 30p/kWh for electricity?

If wholesale gas price, as the graph shows, is 236.28p/Therm, this equates to 8.062p/kWh. A Combined Cycle Gas Turbine (CCGT) Power Station is approximately 50% efficient, so if the gas is bought on the wholesale market then its fuel cost would be in the region of 16p/kWh generated. Assuming a further 50% increase to cover all the associated costs in running the station and other offices, plus a reasonable profit, would give a sale price of approximately 24p/kWh exported. This power could then be traded in the open market, where most customers are paying in the region of 34p/kWh.

If the same CCGT is being operated in open cycle, its efficiency is now in the region of 33%, which would give a fuel cost of 24p/kWh. Adding the additional costs and profit now gives an export price in the order of 32p/kWh.

Obviously in the real World, the larger generating companies will have contracts into the future for both gas purchase and electricity sale, which I suspect may still be lower than the above example. Much depends on their fuel purchases matching their generated output, so as to achieve their overall business plans. If they have to buy extra gas on the wholesale market then their fuel costs will increase, but if they can sell more electricity on the open market, they will increase their income.

One of the major problems I do believe is the way the present electricity market operates. Using the above simple example, if a CCGT station is called to generate in open cycle during any part of the day, the wholesale exported unit price would immediately increase from 24p/kWh to 32p/kWh, and this amount would be paid to all generators on the wholesale market, for all units generated during that time period. I am not saying that it is the case, but it could leave the market open to manipulation, in that if a CCGT Power Station with three individual generators, were to have two generators running in combined cycle, and then bring the third unit online in open cycle during the most expensive peak period. You can do the maths.

The present day electricity supply industry is no longer fit for purpose. There are too many private companies, all with their own vested interest, often controlled by boards of directors not located in the UK. Ofgem should be asking some serious questions as to what are the actual production costs of each generator, and who is making loads of money in the wholesale market.

 

This post was modified 2 years ago by Derek M

   
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Jeff
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Posted by: @derek-m
Posted by: @editor
Posted by: @jeff

Gas price continues on a downward path for now at least

Screenshot 20221017 125123 com.android.chrome

Do you know what wholesale prices need to drop below in order to fall below the current imposed tariff cap? Is it likely that by April/May there’ll be a chance that tariffs fall below 30p/kWh for electricity?

If wholesale gas price, as the graph shows, is 236.28p/Therm, this equates to 8.062p/kWh. A Combined Cycle Gas Turbine (CCGT) Power Station is approximately 50% efficient, so if the gas is bought on the wholesale market then its fuel cost would be in the region of 16p/kWh generated. Assuming a further 50% increase to cover all the associated costs in running the station and other offices, plus a reasonable profit, would give a sale price of approximately 24p/kWh exported. This power could then be traded in the open market, where most customers are paying in the region of 34p/kWh.

If the same CCGT is being operated in open cycle, its efficiency is now in the region of 33%, which would give a fuel cost of 24p/kWh. Adding the additional costs and profit now gives an export price in the order of 32p/kWh.

Obviously in the real World, the larger generating companies will have contracts into the future for both gas purchase and electricity sale, which I suspect may still be lower than the above example. Much depends on their fuel purchases matching their generated output, so as to achieve their overall business plans. If they have to buy extra gas on the wholesale market then their fuel costs will increase, but if they can sell more electricity on the open market, they will increase their income.

One of the major problems I do believe is the way the present electricity market operates. Using the above simple example, if a CCGT station is called to generate in open cycle during any part of the day, the wholesale exported unit price would immediately increase from 24p/kWh to 32p/kWh, and this amount would be paid to all generators on the wholesale market, for all units generated during that time period. I am not saying that it is the case, but it could leave the market open to manipulation, in that if a CCGT Power Station with three individual generators, were to have two generators running in combined cycle, and then bring the third unit online in open cycle during the most expensive peak period. You can do the maths.

The present day electricity supply industry is no longer fit for purpose. There are too many private companies, all with their own vested interest, often controlled by boards of directors not located in the UK. Ofgem should be asking some serious questions as to what are the actual production costs of each generator, and who is making loads of money in the wholesale market.

 

Alternatively try using the Cornwall Insight figures that have been reliable. Some analysts are estimating higher. 

Cornwall Insight said it now expects annual bills to equate to £4,347.69 from April to June, with gas at £2,286.70 and electricity at £2,060.99.

This is for 2900 kWh electricity and 12000 kWh gas

Assume the standard charge now for simplicity under the EPG as that was never changed by the government. 46p a day. So 167.90 a year. 

So 2060.99 - 167.90 =1893.09

1893.09 / 2900 = 65p a unit 

So 65p a unit vs what would have been the Oct cap of 51.8p a unit without the EPG. A 25% increase on the Ofgem Oct cap

The average under the EPG is currently 34p, so a 91% increase on the EPG. 

Might as well assume 65p at the moment if you are doing any budget planning. I don't think you will find a better estimate at the moment

 

 

 

 

 

 

 

 

This post was modified 2 years ago 7 times by Jeff

   
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Jeff
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Estimates will get better as we approach April. We will get a better idea when Ofgem post their Jan price cap data on 24th November only just over a month away now.


   
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Jeff
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@transparent interesting to see OVO displaying near real time 10 sec electricity readings on some customers website accounts, via the CAD in the IHD. 

Just in case you didn't know. I thought it might be interesting info for the various conservations you have. Not new technology but interesting to see it being used more with suppliers in general and being displayed in near real time along side the carbon intensity of electricity. 

c66160ee 7578 49c9 bbf8 a919abd1dbd7

 

This post was modified 2 years ago 5 times by Jeff

   
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Jeff
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@jeff

Whilst I fully understand the need for companies to purchase supply ahead of time, I still wonder if some traders have been taking advantage of the situation.

Also, with the taxpayer at the moment making up any shortfall, it tends to remove the necessity for companies to obtain a good deal for their customers. 🙄 


   
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Jeff
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Posted by: @derek-m

@jeff

Whilst I fully understand the need for companies to purchase supply ahead of time, I still wonder if some traders have been taking advantage of the situation.

Also, with the taxpayer at the moment making up any shortfall, it tends to remove the necessity for companies to obtain a good deal for their customers. 🙄 

Isn't that ultimately the day job of commodity traders, hedge funds etc. To use volatility to make money?

They definitely have taken advantage of the situation for example in moving LNG around the world. LNG is dramatically cheaper in the US for example. 


   
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Transparent
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Volatility in the market cuts both ways. It can make the job of an electricity buyer very much more difficult. The pressure is greatest in the UK wholesale market because to have settlements every half-hour. Almost all the rest of Europe operates on hourly settlement periods.

During a trading period, an Energy Supplier will first draw on the electricity already secured through their Power Purchase Agreements (PPAs). They are then legally required to cover any shortfall by bidding on the open market, a process which must be completed 10mins before the start of the next half-hour supply period.

The rules of the open market trading state that the last trade of that period sets the price of all electricity purchases in that round. The generator (or their agent) selling the last unit of energy to meet the demand in the market sets the price for all energy in that period.

I illustrated this graphically on a OVO Forum a couple of years ago when there was a video-debate with one of their senior managers. Let me adapt that to be more generic and post it here in two parts, referring to the residential electricity supplier as OneBill. Their fictional buyers team is the Joule Traders.

The imaginary OneBill offers its customers a 100% renewable-energy tariff. Whenever electricity from renewable sources is generated and exported to the grid, it created a Renewable Energy Guarantee of Origin (REGO) certificate. These have a notional value, and can be traded any time after the electricity has been supplied.

 

Illustration One:

Once upon a time, OneBill wanted to buy 10MWH of electricity for their merry band of customers.

The wind blew strong in the North Sea and they picked up 4MWH from Ørsted and 3MWH from Eneco under their shiny new PPAs. At 63 and 61 Spondulicks respectively, the Joule Traders were very pleased with their progress so far.

image

Looking around the market they noticed Vattenfall were very rich in solar MWH, which was a perfect match for OneBill’s green credentials. But 3MWH were already committed to Red-Bug Energy, leaving OneBill able to secure only 2MWH.

It was almost the close of trading for the next half-hour period and the Joule Traders were still 1MWH short of their requirement.

Thankfully they were approached by a man in a fur coat who offered them his business card. He said his name was Sergei and could sell them the final 1MWH for 90 Spondulicks.

With time running out, the Joule Traders shook hands on the deal.

It was going to be more expensive than they’d hoped. The deal with Sergei was the last trade of the session. So his price of §90 wiped out all their hard work of securing the cheaper green electricity. Their PPAs weren’t strong enough to give them the lower-cost wind-energy they’d been hoping for.

Worse still, Sergei’s electricity had been generated by GazRU and came loaded with tonnes of carbon dioxide.

With their green energy guarantee at stake, the chief Joule Trader went online and found what he was looking for.

With a few quick clicks of the mouse, he’d bought himself a freshly-minted 1MWH REGO Certificate.

And since the customers never realised how the system worked, everyone lived happily ever after.

Save energy... recycle electrons!


   
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