Over a week has gone by since the result of the EU referendum. Whilst it will undoubtedly impact many economic issues across Britain’s businesses, Energy Procurement tries to cut through the hype and looks at the likely effects on the UK energy market.
The reality, one week on
Energy markets in the short term were predicted to being volatile, whilst the markets try to pre-determine where the value of the pound will settle and the effect this will have within the price of oil. However, in reality there have been no excessive price hikes (due to Brexit) and we are already seeing the price of electricity and gas being driven by the normal fundamentals that dictate market pricing, being predominantly the underlying supply and demand. The price of gas, for example, has risen dramatically over the weekend, however that’s due to failures on the network, rather than Brexit.
Naturally, if the initial fall in the value of the pound becomes sustained then this will drive energy prices higher in the medium term owing to the imports of power, gas and oil being traded in Euros and Dollars.
It is unlikely that the UK will extract itself from the IEM (Internal Energy Market) which is an EU initiative to assist in the trading and balancing of energy across borders as the IEM already consists of non EU members and aids many European energy suppliers that are active in multiple markets.
Future UK Energy
De-Carbonising energy has been an EU directive through legislation and together with the UK have been leading the world in driving through change. This will continue regardless as it is recognised that it is in the interest of everyone and so the closing of coal fired power plants will continue as will the investment of renewable generation.
The question of investment from outside the UK in the energy infrastructure will be one to watch closely. Already some investment has been committed for the development of new nuclear generation but the Government’s own estimation is the need for circa £100bn over the next five years. External investors may just take a little longer to make their decision whilst they watch the health of the UK economy.
Your current contract
For anyone who has their energy contracts due for renewal in the balance of 2016, we recommend that you look to secure your next contract sooner rather than later. Underlying gas supply fundamentals have already started to push prices higher over the past week, add in continued market uncertainty and a weak pound then prices may increase further.
Energy contracts that are due for renewal in 2017 are likely to have a lesser hike in price as they will not suffer from the short term issues, however, these are unlikely to get any cheaper than they have been in recent times and so securing your energy through to at least 2018 could be a prudent move.
If you would like to discuss further please call our Energy Team on 0345 337 3838