There are a number of reasons why the Energy Market fluctuates, some suppliers use different methods to purchase their Energy. Where suppliers are generating their own Energy the market rate may fluctuate more often due to supply and demand.
1- Electricity generation mix
The UK gets its Electricity from a wide range of sources which include gas coal, and renewable.
The Energy production system is currently undergoing a shift as we move to use less carbon-intensive fuel sources.
Fuel costs for conventional forms of generation vary depending on the price of Gas and Coal.
The Renewable sources once built don’t have ongoing Fuel costs.
Soon the cost of Green Energy will be more cost-effective than traditional Brown Energy.
2 – Renewable Energy Generation Our wholesale Energy Markets are showing that the amount of coal-fired generation has been decreasing in favour of less carbon-intensive sources of electricity, such as gas, wind and bioenergy. The share of renewables in Global Electricity Generation jumped to nearly 28% in Q1 2020 from 26% in Q1 2019 The increase in Renewables came mainly at the cost of Coal and Gas (though those two sources still represent close to 60% of global electricity supply) Onshore wind provides the largest portion of Renewable Electricity, however in recent years we have seen Solar Energy become a go-to choice – allowing cost-effective off-grid solutions As fuel costs for renewables are effectively zero, which makes per KiloWatt savings across the board, this results in lower wholesale prices
3 – Gas prices
The price of Electricity is affected by the price of Gas. This is because gas-fired generation is often the marginal source of generation. When electricity demand is low it is met by cheap sources of power, traditionally including Coal-Fired and Nuclear plants whereas Renewables are now playing an increasing role in Energy Generation
However, when demand increases in GB, gas-fired generation (which is more expensive) is added to the mix as the marginal source of generation and increases the wholesale power price. As the price of gas rises and falls, so does the cost of generating electricity using Gas. Wholesale gas prices have been falling over the last few years, which is a good sign as Renewable Energy becomes an accessible source.
4 – Interconnectors
GB’s electricity market is connected to neighbouring countries via four cross-border transmission cables, called interconnectors. In 2019, interconnectors supplied 8% (25 TWh) of total electricity consumption in Great Britain, rising to 9% in the first six months of 2020. 66% of this energy in 2019 came from zero-carbon sources.
These links allow electricity to flow in both directions, generally importing electricity into GB when our price is higher and exporting electricity when the price in neighbouring countries is higher.
Great Britain (GB) currently has four electricity interconnectors. They link us to France, Ireland, the Netherlands and Northern Ireland.
Summary
1- Electricity generation mix
2 – Renewable Energy Generation
3 – Gas prices
4 – Interconnectors
In summary, the wholesale price of electricity is affected by the drivers discussed above, we have more demand-based price fluctuations which are common in all industries.
This is a common reason why we see a general spike in Energy
Prices during the Winter –
Here’s a TIP – If you are looking for an Energy Agreement try and include as many summers as you can – Start Summer 2020 – Winter 2020 – Summer 2021 – This will give you 2 summers and 1 winter making your renewal price cheaper based on demand during the summer.
In recent years annual demand has been slightly falling, and National Grid’s Future Energy Scenarios predict this will be the case for at least the next few years. The current Pandemic has also reduced market price due to a considerable drop in demand.
Currently, the UK has a lot of excess energy, so the High Energy Users can really benefit from getting a more favourable rate per KW.
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