Energy Outlook
January 2025
As we reach the halfway point of the decade, it is clear that the energy markets are not going to settle any time soon. Although we have not seen a return to the highs of three years ago, there has been no lack of drama with the developing situations in Ukraine and the Middle East, all against a continuing uncertain backdrop of variable global economic growth.
As we move into the second half of winter, what have we learnt from the changing gas supply situation and what might it mean for future prices? We can be sure that the new Trump presidency will have a big impact on the world – but what might it mean for energy? In this paper, we look at recent history and untangle the big questions for the year ahead.
Energy Price History
The chart below illustrates how UK energy prices have developed since early 2023:
OIL
How oil will behave in 2025 would normally depend upon the balance between Middle East tensions, global economic growth and OPEC supply. So far, the Middle East has avoided descending into all-out war in spite of escalating rhetoric and action, but the big unknown here is Trump.A long-standing supporter of Israel, he may galvanise them into more aggressive action which could blow the lid on the whole situation. Conversely, his professed love for tariffs (and, in particular, tariffs on Chinese imports) is a negative indicator for global growth. So we have an odd situation where one man’s actions could swing the market either way, or both ways! On this basis, volatility without a clear direction can be expected over the next six months.
GAS
Gas is the most important factor for the UK in the short term. There has been a somewhat shaky start to winter, with initially warm (well, higher than seasonal norm) weather and full storage offset by much lower LNG imports than a year ago. This became telling when temperatures dropped suddenly in mid- November. With inadequate LNG supplies, it has been necessary to withdraw stored gas.Although levels remain high in the 5 year range for this time of the year, they are below where they were both this time last year and the year before, pushing risk into theFirst quarter and increasing forward prices for summer (when the gas will be needed for re-injection). On the positive side, in a sign of markets working efficiently, we have seen some LNG shipments bound for Asia being redirected to Europe as our prices have gone up. The Russia-Ukraine situation continues to impact the market. Russia’s gas supply into Europe (which, ironically, flows through Ukraine) is less than 20% of what it was pre-crisis, but is still material. The supply agreement was due to terminate at the end of 2024, with no renewal expected. This is another area where Trump could play a hand, having suggested that he could “end it in a day”. As with oil, the impact on the energy market could go in any direction, depending upon how he goes about this.
ELECTRICITY
The UK electricity market has been relatively benign so far this winter, although it continues to take its lead from gas (since gas generation is still such a significant part of the UK mix). There have been no major, unexpected outages at large power plants and the French nuclear fleet is operating at expected levels, so exports and imports between the two systems have helped to stabilise prices (as opposed to making them more volatile, as we have seen before). The only concern being the weather, with lower than expected . wind generation throughout most of November – before and during the cold snap. As the share of renewables continues to grow, the impact of these periods of low generation will become more prominent.
Non-Commodity Costs
Non-commodity costs (or ‘non-energy charges’) are added to your bill to cover the costs of the National Grid transmission network, local distribution costs, renewable and environmental surcharges and taxes to ensure security of supply by subsidising the availability of capacity. These elements make up over half of a typical bill today. The chart below shows the history and how these are forecast to change for an average customer: 
Figures based on an average UK Half-Hourly portfolio.
Some of the charges are based on a set, predictable formula, whilst others can be variable: based upon market conditions, demand and renewable generation. Several important changes are expected in the coming year:
Energy Intensive Industry (EII) Support Levy: This new levy was introduced in 2024 to provide a subsidy to energyintensive industries such as Chemicals, Steel and cement production. The scope of subsidy is due to increase next year, which will put prices up for all other consumers.
Nuclear Regulated Asset Base (RAB) Charges: This is a new charge designed to support investment in new nuclear generation capacity. The new charges are expected to be implemented from April, although this will be dependent upon a positive Financial Investment Decision (FID) for Sizewell C, which has been delayed. The exact costs are not yet known, although the Department for Energy Security and New Zero (DESNZ) has promised a forecast ‘at some point’.
Transmission (TNUoS) Charges: A large increase is expected for transmission charges as the system operator needs to recover £5.5bn – a huge increase over the £3.5bn just three years ago – a jump of nearly 50%.
For more information, please get in touch with your Utility Aid Account Manager or call us on 0808 1788 170
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