Overview of May 2012 – May 2013
Welcome to the June edition of the E.ON MarketReport where we look in detail at the energy markets
from May 2012 to May 2013.
This report provides an historical overview of the power, gas, oil, coal and carbon markets.In addition the E.ON MarketReport contains month to month commentary and price movements for each of these individual markets.
Last month in brief (May 2013)
Bearishness gave way to bullishness throughout the month as we saw the coldest May since 1996, this
was reflected in the price as the front-month contracts traded up by around 2% for both Power and Gas.
As well as low temperatures we have also seen severe tightness on the gas system as maintenance has
over-ran on some platforms which has led to other planned work being delayed or extended throughout
the month with only the strong LNG supply providing any relief to the fuel mix.
Also, economic news from China, the US and Europe has influenced price movements as the momentum
is being lost from economic stimulus programmes around the world which is shaking optimism that the
global recovery is on track.
Carbon permits have become an increasingly important driver for the price of UK power as more than
70% of UK power stations use coal or gas.
Burning coal and gas releases harmful emissions into the environment. Higher generation means more
carbon emissions are produced. Therefore the cost of ‘clean’ power also takes into account the cost of
carbon permits traded under the EU scheme.
Cost of producing ‘clean’ power = price of generation fuel + price of carbon
Burning coal generates more than twice as much carbon as burning gas, hence if the price of carbon
increases, the effects are felt more strongly in coal generation. Carbon price therefore directly affects
the demand for both gas and coal as a generation fuel.
Change in prices from May 2012 – May 2013
The average Eu
Day Ahead failed to register much bearish movement in yesterday’s session, as the
Interconnector was still exporting to the continent, after running at full capacity over the
weekend, ahead ofthe expect closure tomorrow. Temperaturesin some areas also dropped
to below seasonal average, as demand reached up to 240mcm and linepack remained short
for the majority of the session. Howevr, seasonal contracts made heavy losses, the largest
seen on theW14 contractwhich closeddown 0.75ppt.
Winter13 fellto itslowestsince the start of May to £53.65/MWh, asseasonal contractstook
bearish direction from falling API2 and Brent prices, as data indicated a deterioration in the
Chinese economy. The Day Ahead contract saw mixed intraday movement as a nuclear
reactor at Hinkley was brought back online, whilst two coal fired plants experienced