On Wednesday 23rd February, we held our Navigating Current Wholesale Energy Markets webinar in partnership with Procurement for Housing (PfH), hosted by Rob Clark, Head of Public Services and Alex Mackey, Flexible Pricing Manager at Inspired Energy.
We invited PfH members and valued contacts to join us as we discussed the wholesale market dynamics, past, present, and future as well as likely outcomes for social housing providers.
Here’s a short summary of the webinar, which you can watch in full, on demand here.
Please note: All information was correct at the time of broadcast, however due to the more recent news about Russia’s invasion on Ukraine, the position of the market has now changed – see brief impact explainer below. If you need expert advice or support in navigating these challenging times, please email firstname.lastname@example.org and a member of our team will be in touch as soon as possible to support you.
Why Procurement for Housing members should pay attention
Our Flexible Energy Manager Alex Mackay talked us through what he calls ‘a perfect storm of influencing factors’ that all link back to our previous winter period.
The energy market has been largely affected by the wake of the COVID-19 pandemic, as well as competition from LNG (Liquefied Natural Gas) from Asia, on top of a cold and extended 21-22 winter.
Our storage was severely depleted over this period which meant there was an urgent need to refill our storage levels. This is normally a time where we’d be looking to put back into our gas storage but instead, we we’re still taking out of our reserves. This then has a domino effect into the summer, as you’re trying to refill the storage over a shorter period, which in turn creates fears around the following winter.
The lack of supply from our renewable and nuclear output, of which we had the lowest output from wind generation since the 1960’s last year, and our nuclear is aging and becoming more and more unreliable. Coal has now become virtually irrelevant as most of the UK’s coal plants have been shut down as part of our drive towards net zero. All this means there is simply more pressure put onto gas as our primary fuel at a time where its supply and demand are also very tight. Also, during the winter period, Nord Stream 2 certification was paused, and traded carbon prices continued to break new records.
In today’s market, we’re experiencing mild weather and record levels of LNG, but our storage is now within the 5-year norms. The building tensions between Russia and Ukraine that have been building since the winter period are now taking centre stage. Some of the risk is already factored into pricing however the market may jump depending on escalation levels (please read full update below).
Situation update: Russian invasion of Ukraine
Russia invaded Ukraine on Thursday 24th February, with key targets being airports and military infrastructure. Attacks have been specifically targeted and initial sentiment is that energy infrastructure will remain intact.
US, UK and EU have imposed severe sanctions on Russia. These are focused on freezing the assets of major Russian banks and exclusions from Western financial systems, freezing assets of individuals close to the Russian government and restricting Russia’s access to high-tech imports. The UK has also introduced laws to stop major Russian companies and the state raising finance or borrowing money on UK markets and Russia’s Aeroflot airline will be banned from the UK. EU nations are planning to target the energy sector with an export ban on materials Russia uses for oil refineries. German chancellor Olaf Scholz has also put on hold permission for the Nord Stream 2 gas pipeline from Russia to Germany to open.
Russian gas flows to Europe have continued, with the initial invasion having little impact to gas exports from Russia to Europe. However, now sanctions have been imposed on Russia it is a possibility that they would respond with countersanctions which could see Russian gas exports to Europe severely restricted.
The ability for Europe to get its natural gas supplies from other countries is limited, with an ongoing conflict between Algeria and Morocco limiting Algerian pipeline exports. Meanwhile, demand for Liquefied Natural Gas (LNG) in the Asian region is rising which could see Europe’s much-needed LNG either sent to Asia or having to be bought at higher prices.
Updated explainer: Impact of Russian gas on UK energy markets
The UK only receives around 5% of its gas supply from Russia, which means that restrictions to Russian gas do have a direct impact on UK energy markets. However, the real impact of a restriction in Russian gas supplies is an indirect one: it causes stronger competition for gas supplies from other sources. A key importer of gas to both the UK and to the EU is Norway, who supply around 1/3 of the UK’s gas supply. Other key suppliers are Belgium and the Netherlands.
If gas supplies from Russia are restricted then European nations are forced to turn to other gas suppliers e.g., Norway, with this increased competition for gas supplies providing a corresponding bullish signal to UK gas markets, and by extension power markets. Furthermore, it exacerbates competition for Liquefied Natural Gas (LNG) cargoes and providing upside risk to global LNG pricing as well.
UK gas storage is also of a low capacity, with the Netherlands and Germany having 9 and 16 times the storage capacity of the UK respectively. This low capacity leaves the UK more exposed to spot market dynamics, meaning that a restriction of Russian gas into Europe could provide strong bullish pressure to UK energy markets.
What options do Procurement for Housing members have?
Whilst we are still in somewhat uncertain times, it’s always best to ensure that you’re comfortable with your own strategy and position — whether that be in a fixed or a flexible contract.
Housing Associations should be thinking about their energy contract renewals at least one year in advance of your contract ending. Typically, longer term contracts are beneficial to spread risk and avoid any spikes in energy pricing.
12-month contracts whilst typical in this sector, can be quite challenging in this market, which is where Section 20 dispensation comes in to allow for those longer contracts. Having the ability to have longer term contracts is valuable and a project that is worth undertaking if you haven’t already.
With budget certainty a top priority for most housing associations, flexible contracts are often not considered when it comes to renewal time. However, there are ways which we can deliver budget certainty as well as allowing the flexibility to benefit from any downturns in market price.
Why Procurement for Housing and Inspired?
Rob Clark, Head of Public Services at Inspired then covered what to look for when choosing an energy partner. He highlighted full transparency as a top consideration, asking ‘does your current contract give you direct access to supplier billing?’
Other top tips included looking for a partner who can offer a dedicated and proactive Account Manager and regular review meetings, in-house bureau services, advanced reporting and obtaining additional services including net zero and sustainability ambitions, Section 20 support, or void management, to name a few.
Rob closed the session with an early view of PfH’s new framework (2022-2026) features.
Work with a trusted energy expert
To ensure you have the best energy procurement strategy for your housing association, consider working with a trusted energy expert who can help you navigate the current price turbulence and provide a fully PCR2015-compliant route to market. Inspired currently manages over 9,000 housing association meters on the PfH framework, so we have the expert insight and knowledge to support you. Please contact email@example.com to speak to a member of the team.