The energy price hike and what it means for European businesses

6th December 2018 | Commercial Energy

Martyn Young Procurement Director at energy management consultancy ZTP, discusses what’s happening with energy prices, what businesses can do to mitigate against the rising costs and the outlook for 2019.

Since June energy prices in the UK and Europe have risen significantly leaving many energy managers with a large overspend on budget forecasts for winter 2018 and beyond. The wholesale gas cost for 2019 calendar year rose 46% between 1st April and 30th September, and wholesales electricity 36%. This has moved the energy content of a typical electricity bill from 43% to 48% even accounting for a 9% increase in non-energy elements.

Energy prices

So what change in the market to make such a dramatic impact in a few months?

At the start of the summer there was a lot of nervousness about the volume of gas stocks not only in the UK where we had experienced the third coldest Marsh in 37 years, but also in Europe. 2018 was a year of high infrastructure maintenance, including the Russian pipelines, and consumers over the summer need to compete with the gas storage system for production. This background issue was then compounded by two main factors.

The EU agreed to limit the volume of carbon for auction to increase the price of coal generation. This formed part of the policy geared towards hitting carbon reduction targets. The carbon price consequently rose from €7 to €21, the highest since 2008. This pushed the price of coal generation in Europe, and it became more attractive to generate electricity from gas fired generators. Carbon price became a main driver of UK gas price over this time, and therefore also of electricity.

Persistent high pressure systems over Europe resulted in low wind generation combined with a lack of rainfall resulted in the temporary unavailability of power generation from some of France’s nuclear facilities in France due to lack of cooling water.

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