UK wholesale power and gas prices have dropped to record lows. Credit rating agencies have downgraded European utilities as they do not foresee prices to pick up in the near future.
Gas prices for the coming winter dropped to record lows as storage facilities filled further due to low demand, providing a significant buffer for potential winter supply disruptions. Five LNG tankers expected to arrive by the 11th of July have put further downward pressure on prices.
Oil prices have also taken a dip which also caused gas prices to fall. Oil and gas prices are still interlinked until a vast surge of new gas supply is found in Europe, i.e. shale gas, European gas prices remaining to be indexed by oil.
Power prices have collapsed for several reasons, including political and social reasons. Rising renewable energy output is creating overcapacity and eroding prices, while profitable coal-fired power stations are forced to close under the EU Large Combustion Plant Directive.
Decreasing demand has also added to pressure to prices as we become more energy efficient. Both businesses and domestic users of energy are looking internally to reduce energy consumption and cut costs by investing across a range of technologies.
Political instability is another cause, “In our view, there will be further policies and reforms, which will negatively affect the European utility sector,” rating agency Moody’s said. This will continue into 2015 till the general election when the UK political parties change policies regularly.
Rating agencies are expecting this downward pressure to remain for several years. Although the wholesale price of power will be lower, the non-commodity cost is expected to continue to increase with government policies attributing to be the main factor across Europe.
