Energy Outlook
October 2024
The end of September marked an end to the UK’s 142 year history of coal-fired generation after Ratcliffe Power Station closed its furnaces for the last time. The complete demise in coal is all the more remarkable when you consider that it made up 39% of electricity output as recently as 2012 and underwent something of a revival in more recent years to shore up winter capacity. The unanswered question is whether this will impact generation over this winter – the answer to which depends largely on wind and the availability of nuclear generation in the UK and France (via the interconnector).
In reality, the bigger risk over this winter is related to gas prices, with pressure coming from the last vestiges of Russian supply ceasing, LNG deliveries thinning out and oil-price risk from spiralling conflicts in the Middle East.
Energy Price History
The chart below illustrates how UK energy prices have developed since the beginning of 2023 as the markets began to settle after the energy crisis of 2022:
OIL
Oil prices have continued to drop in spite of escalating conflict in the Middle East. This is mostly due to sluggish global demand – in particular poor economic data from China, which has seen shrinking manufacturing output for five straight months. OPEC+ has all but abandoned its unofficial target of $100/barrel and Saudi has suggested it will instead boost production in the last quarter. The markets are remarkably calm given that Israel is now fighting on multiple fronts, internally in Gaza and the West Bank, as well as Yemen and now Lebanon. That calmness may well dissipate if Iran (who supports every one of Israel’s current opponents) enters the fray. In addition to being a significant oil producer in its own right, Iran’s entry into the conflicts will undoubtedly drag others in the region into war.
GAS
There is mixed news on the gas markets, with the ‘bullish’ factors (which push the price up) currently winning – we have seen prices rise slowly but surely over the summer months. On the positive side, gas storage across the whole continent stands at 90%+ as we enter winter and the scheduled LNG supplies (although down on last year due to competition from Asia) remain healthy. On the down side (in addition to oil risks), Norwegian pipeline supplies have been unreliable recently, with unplanned outages at the Oseburg and Visund fields causing concern for more trouble in the coming months. It has also been confirmed that the one remaining Russian gas supply through the Sudzha pipeline in Ukraine will cease at the end of December, although there is concern this may actually terminate sooner. Whilst this only represents 10% of peak pre-crisis Russian supply, it adds to worry when combined with the other risks.
ELECTRICITY
Power prices closely follow gas, so all of the factors already mentioned apply to power. Having dipped to a recent low point in the first half of the year, the market is on the way back up, although it’s not all bad news. The absence of coal generation is not expected to impact available capacity, and wind generation has performed particularly well in the past few months, adding to optimism. The UK nuclear fleet continues to perform well, in spite of its age. EDF hope to extend the life of the fleet where possible,
which is positive for UK capacity. The French fleet (which has been unreliable for several years) seems relatively stable for the time being. The outlook is not so great for carbon prices. Having delinked from the EU ETS scheme, UK allowances were trading at a significant discount until earlier this year, but have risen by over 50% since then. Carbon prices add to the cost of gas-fired generation which sets marginal power prices, so any increase feeds directly through to wholesale prices. Although there is no cause for panic, we should expect some further increases to come.
Non-Commodity Costs
Non-commodity costs (or 'non-energy' costs) are charges 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 the 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.
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