29 Jan Energy Experts Reveal Their 2019 Energy Industry Predictions
What is in store for the UK’s energy industry in 2019? We’ve rounded up the opinions of three energy experts to find out…
What can we expect in terms of UK wholesale gas and electricity prices?
Tim Sealy-Fisher is Head of Key Accounts at Smarter Business: “Both gas and electricity prices continue to be volatile as the market struggles to make sense of all that is happening in the world.
The weather will remain the biggest driver, with a cold snap rumoured to hit towards the end of January. But will this really happen, or are the forecasters playing it safe? The impact of Brexit is also adding quite a lot of confusion into the mix in terms of supply and demand.
Over the last month, we have seen prices fall from their previous highs in mid-September 2018. The further into Q1 we move without any really high demand periods, the more likely the market will drift lower in the next few months. However, last winter remains fresh in everyone’s memories, and any hint of cold weather will likely cause prices to hike with little warning.”
Edgar van der Meer is a Senior Analyst at NRG Expert. He predicts a “volatile” year for wholesale gas prices and electricity prices: “Many uncertainties exist in terms of the global energy markets, but the main driver of the fluctuations for the UK will be the exchange rate and the weakness of the Pound against the US Dollar. The UK is an energy-importing nation, and Brexit uncertainties will have a great impact on the price of oil for the UK as suppliers will be looking for guaranteed revenue and security. This will mainly affect the gas markets, but electricity markets will feel the pinch too, as higher upstream costs of the raw material fuels will trickle down to wholesale markets.”
What are your UK energy price predictions 2019 as a whole?
Tim: “Although it’s impossible to make broad predictions, what we do know is that the market is nervous about gas storage and the outcome of Brexit and its impact on both trading arrangements and currency. When the Euro strengthens against the Pound, there is more incentive for Europe to import gas (which is also used for electricity generation) from the UK, driving up the demand on an already limited supply. With the UK’s main storage facility closed since July 2017, there are concerns over how the UK will cope when cold weather hits, as was notable in March 2018 when gas prices quadrupled due to short supply.
In Q3 2018, we saw steady increases in prices into the winter period. However, after mild December weather, prices reduced by 10% at the beginning of January. The key indicator as to what will happen with prices this year will come down to weather forecasts.
In addition, non-commodity charges continue to increase year on year. Consumers can, therefore, only expect to see increases in contract costs.”
Edgar: “It is very difficult to predict global energy prices. Only a few months ago, the predictions seemed to line up that 2019 would see oil at around $70/barrel. However, this range is now anywhere between $55 and 90, depending on who is reporting. NRG Expert believes that there will be a supply glut as production will keep pace in non-OPEC countries, but demand will slow due to trade uncertainties between large economies. Here, too, Brexit will have an impact for the UK and the overall economic hit will be felt in markets.”
A spokesperson from Ofgem says: “Competition in energy is working better for businesses as a whole, but small and micro businesses continue to pay much more on average for their energy than larger businesses. There are rules so that micro-businesses (Britain’s smallest businesses) cannot be rolled over onto new fixed term contracts. Together with Government, we will work to review the need for stronger protections for micro-businesses from potential sharp practices by brokers.”
How will the energy price cap affect business energy customers?
Edgar: “Business energy customers will have no direct impact of the cap on default tariffs for consumers who do not have supply agreements in place. As would make sense, small businesses and other large consumers of energy should shop around and find the best deals for their needs to ensure stability and the most savings. Should the price caps have the desired effects, it could mean an economic boost in spending by consumers which will help (primarily) the retail and small business sectors.”
Ofgem confirms that “the price cap only relates to household customers who are on poor value default deals. Eleven million households on these deals set to save around £76 on average under the cap.”
In terms of energy generation, do you think renewable energy generation will continue to increase? What about coal-fired power?
Edgar: “Renewable energy will continue its upward march; however, the ambitious targets set in the past will likely be missed in the longer run up to 2030 and 2050. Lower energy prices for oil and gas (despite recent increases) have slowed investor confidence in renewable energy projects, so it is up to the government to step in and offer the incentives and regulate the polluting industries simultaneously. Coal-fired power is making a small come-back currently, with the economies of commodity pricing keeping it an attractive source of energy.
Ofgem: “The transition to a smarter, more flexible energy system is happening at a pace that nobody thought possible just a few years ago, and it is hard to make predictions on what will happen in the future. However, several milestones have already been passed, such as days where no electricity was generated by coal for the first time since the industrial revolution. Last year was also a record year for output from renewable generation with more than 30% of electricity in Britain coming from renewables.”
What non-commodity charge and regulatory changes are in store?
Edgar: “Data is a big new area for the energy sector with smart technology taking hold in our day-to-day lives and generating massive amounts of data on consumption and consumer behaviour relating to energy. We will see a shift in how this data and its acquisition and storage is regulated. Data regulation (industry focused) will be the biggest area for regulatory changes. Should the economy worsen, however, we would likely see more management and government influence in prices and stimulation to change suppliers as is being done with the price caps.”
Ofgem: “Some of the major changes involve overhauling rules that are 20 or more years old so that they don’t stand in the way of progress towards a smarter, more flexible energy system. We also want to get a better deal for businesses and all consumers on the next set of price controls that we will set for monopoly energy networks from 2021. We are proposing a far lower cost of capital (rate of return) for these controls than is allowed at present which will save businesses and households money.”
Ofgem has set out proposals to help deliver “a smarter, fairer and cleaner energy system which is fit for the future and saves consumers money.”
You can read more about these proposals here.
Tim: “With most customers seeing significant increases in electricity charges in their recent rounds of re-contracting, it’s very likely that energy will become a higher focus on board level agendas as customers investigate options to reduce their energy costs.”
Edgar: When it impacts the bottom line, consumers can be motivated to reduce their energy consumption. Mandatory schemes such as replacing incandescent bulbs with LEDs and giving houses energy ratings do help and are a big part in changing consumer behaviour, but the biggest shifts will come when the investment to go green equals the biggest returns for consumer pocketbooks.
Ofgem’s 2018 State of the Energy Market states that domestic energy consumption has been falling over the last 15 years. On a temperature corrected basis, final domestic energy consumption fell by 17% between 2002 and 2017, despite increases in the population by 11% and number of households by 13%. The longer-term downward trend in domestic energy consumption may be due to a combination of:
- more efficient use of energy
- more efficient electrical products as a result of regulation and technological improvements
- decisions by households to consume less
Secure a cheaper energy supply
No matter what happens in the market, comparing quotes and switching energy suppliers is likely to save your business money. Contact an expert energy broker from Smarter Business to switch and save.
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