How does the election result affect wholesale energy prices?

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WHOLESALE energy prices have plunged by more than 30 per cent over the past year, with business customers having a chance of making savings.

Changes in wholesale prices are largely driven by global factors such as fluctuating
exchange rates and weather events.

Following the general election result, the Pound recorded a three-year high against the Euro when the GBP/EUR exchange rate rose to 1.2080 today.

ICON spoke to Ben MacFarlane, Market Analyst with Inspired Energy, about the implications of the Conservative win to wholesale energy prices.

“One of the biggest market movers has been the UK Sterling, shooting up against both the US Dollar and Euro. This comes as markets are more certain of an end to Brexit turmoil, that has dogged the economic outlook into 2020 and beyond”, Mr MacFarlane commented.

“The impact of this is that the real-term import costs for energy has fallen, which is a bearish signal for UK energy considering we remain a net-importer of natural gas from Norway/Continental Europe pipelines and via global shipments of Liquified Natural Gas.”

Another factor that has to be taken into account post-election is the Conservative stance on Brexit.

“The public have now given PM Johnson a clear mandate for Brexit, with Parliamentary arithmetic signalling the current proposal could pass its second reading as early as 20 December”, Mr MacFarlane explained.

“Should it get pushed through we should see a decrease in market volatility from 2019 levels. Recent volatility has come about from markets attempting to assess no-deal Brexit risk – an outcome that would lead to the UK’s immediate exit from the EU Emissions Trading Scheme.”

ICON interviewed Simon Watson from Redshaw Advisors about possible ETS scenarios in the case of Brexit before the general election.

Nick Campbell, Director of Intensive Clients at Inspired Energy, added: “Wholesale prices have slumped throughout the year reflecting the growing global glut of liquified natural gas as demand wanes from the Far East as China reduces it spot purchases and Japan moves to switch on its nuclear fleet again.

“This has coupled with increased supply from Egypt and US in particular as it looks to export its shale gas to the wider world. It is easy to become complacent to recent falls but as history shows it is unforeseen supply or demand side shocks such as the issues with EDF’s French Nuclear reactors over Winter 2016/17 or the ‘Beast from the East’ in March 2018 that can quickly change market sentiment.

“Therefore, with wholesale energy only savings on the table it would be prudent to lock some of this benefit in.”