More Settled Winter Energy Outlook is Good News for TEC Members- Duncan Wyatt – Head of Trading & Portfolio Management
Last winter there were concerns that we might not keep the lights on after Russia cut its gas supplies to Europe and sent prices surging. This winter, thankfully, the National Grid is predicting a more settled outlook. However, several key questions remain. Will energy generation be enough to meet demand and if not, will we face the threat of black outs? What might the role of flexible generation be this winter? How might the long-range forecast impact upon forward-looking energy prices?
These issues and many more were explored by a panel of energy experts at the recent TEC 2023 Conference. Claire Dykta from National Grid, Geoff Parker-Naples from Corona Energy and Binoy Dharsi from EDF joined TEC’s Head of Trading Duncan Wyatt for the opening plenary.
We sat down with Duncan to discuss the energy prospects this winter and how this may impact upon our membership.
Are there any anticipated interruptions to energy supply this winter?
The National Grid ESO’s winter outlook describes much less chance of the UK facing shortages of supply in comparison to last winter. Increased generation and a greater ability to gauge and manage demand through newly introduced energy management service are expected to put us in a better position this year.
Last winter there were concerns that there could be blackouts but we did not experience any interruptions to supply. All the evidence points to the fact that there will be plenty of gas and electricity this winter.
For our membership this means that they can be confident about carrying on with their plans without any interruptions to energy supplies affecting their operations, still mindful of exercising continued restraint against a backdrop of elevated prices.
What is the energy price outlook this winter and how might this affect TEC members in the future?
TEC has a forward buying strategy, which provides budget certainty and smooths out market fluctuations. This meets our members’ needs and means that they are less affected by wild swings in energy costs and have good notice of price changes.
We take a medium to low-risk approach, designed to suit the needs of our members. Over the period of the energy price crisis so far, a longer-term buying strategy has beaten a shorter term one on price.
Those members who need to top up their energy supply this winter may enjoy lower prices. Those members that have lower demand and end up selling the energy they don’t need may end up paying higher prices per unit, but overall will have lower bills. It’s always better to use less energy.
What is the long-range weather forecast this winter and how could this impact on energy costs for TEC members?
The weather can have a noticeable impact on energy prices. Last winter we experienced extremely mild weather after Christmas which then had a knock-on effect in reducing energy prices.
The long-range forecast this year suggests it will be slightly milder overall than the long-term average but that it’s likely to be colder than last winter. With this prediction of a milder winter, prices could be low on delivery, and if the forward curve then drops further, we will continue to buy next year’s energy even more cheaply. That means members would benefit from lower prices from April onwards and throughout winter 2024/2025.
What are the big energy issues and innovations which could affect future energy costs?
Demand side response – which rewards energy users for not using energy at peak times – is set to grow. Whilst we need more wind and solar energy to meet net zero this is not always a guaranteed energy source, which means that as well as the need for back up flexible energy generation, we can also dynamically manage demand. If an organisation can avoid using energy at peak times, that will almost certainly reduce their energy bill. The option of buying into flexible energy products is definitely an area that TEC will be looking into for our membership in the near future.
Likewise, in the future, there will be increased costs to using the grid. If you are a university in the south coast getting energy from a wind farm in North of Scotland that energy must be transported a long way. However, if you can put solar panels in your campus and not use the grid at all then you can avoid a huge number of costs.
LNG is also set to play a growing role in energy supply in the future. Forecasts suggest that there will be greater imports of LNG coming to the market in 2026/2027 which will replace a lot of the Russian piped gas on a longer-term basis. Although global demand for gas continues to rise, market experts believe that there will be more gas around for everyone in three to four years, as supply is forecast to grow faster. That works for our membership as we buy in advance and prices are forecast to go down as time passes.
What can members do to reduce both energy costs and carbon emissions?
The quick answer is to reducing energy demand – which isn’t always easy but can reap huge rewards – is going to be key to reaching net zero. We always advise members that energy supply management is the best single way to reduce their energy costs.
We are also working with members to look at if they can make sustainable energy procurement choices both from a cost and carbon perspective which help the grid go greener sooner. This includes signing up to Power Purchase Agreements (PPAs) which underwrite the development of new green assets.
Through our Carbon Reduction initiatives, led by Dr John Brenton, we are supporting the development of self-generation projects which help members to decarbonise. Whilst we appreciate that our members all operate under different and often difficult circumstances, our role is to help make going green as painless as possible.
Finally – and as demonstrated at the recent TEC conference – the ability to share experiences and best practice can play an important role for our membership. If our members can continue to learn from each other and tap into the resources TEC provides, then we are all winning in the transition to net zero.