Energy Market Update - Friday 17th March 2023
In the news this week
E.ON planning large boost in investments in its grids and retail businesses. Whilst acknowledging that Europe’s energy crisis is by no means over, E.ON has now taken an optimistic outlook of the market and plans to increase its investments to 33 billion euros, which represents a substantial increase of 20% compared to its original plan. The immediate effect of the announcement was an increase in E.ON’s share value of 2.3%, however the stance taken by a company of this size can cause rippling sentiments of shared opinion across the market and increase confidence at a time where high levels of volatility and subsequent price spikes remain a very real possibility. Increased market stability in the UK is a possible, and potentially very welcome, outcome.
Renewable generators had called on the government to provide better investments to encourage the uptake of new renewable generation projects, whereas oil and gas producers had requested that the effects of the wind fall tax imposed last year to be reduced by the introduction of a floor price. Neither of these were forth coming in this week’s Budget. The government has announced that details of new measures to support energy security will be announced in March, so both the oil and gas and renewable industries will be hoping for positive changes to the Energy Profits Levy (EPL) and Electricity Generator Levy (EGL) respectively. If their requirements are not met, we may see an up take in demand for coal and slip back from the net zero targets the UK is aiming for.
French government pushes through pension change without vote, sparking anger in France. On Thursday, the French Prime Minister used a special procedure to push the pensions bill, which had been the cause of the recent strikes, through the National Assembly without a vote, sparking anger amongst French protestors. This bill is looking to increase the retirement age to 64, up 2 years from the current level, with the vast majority of voters opposing the reforms. The use of the 49.3 procedure, the procedure which can push bills through the National Assembly without a vote, is likely to cause further strikes and protests in coming weeks. If strikes are to persist, we could see further French nuclear and LNG capacity taken offline, reducing French production, and keeping them dependent on fossil fuels and imports from neighbouring countries such as the UK, offering upward pressure to near curve UK energy contracts.
Current Market Drivers
Forecasts of above average temperatures into next week is decreasing household heating demand, offering downward pressure to day-ahead UK energy contracts.
Despite strikes in France and corrosion issues taking nearly 11 GW of nuclear capacity offline, EDF has maintained their output forecast for 2023, easing some supply concerns.
Strong Norwegian flows coupled with 30 LNG cargoes confirmed for Mar-23 already is offsetting upside from the drop in French nuclear, causing near curve UK gas contracts to trade sideways this morning.
A continuation of French strikes is expected following the use of the 49.3 procedure in France, keeping French dependence on imports elevated, offering upward pressure to near curve UK energy contracts.
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