As the colder months approach, the most common question our Optimisation Desk team gets asked is, what will energy prices do this winter?
While we don’t have the gift of foresight, we can use our knowledge of hindsight to predict likely scenarios – and highlight key factors for energy buyers to be aware of.
We’ve distilled this view into our 'Winter 25 Outlook' report, which is available to all Optimisation Desk clients. However, if you’d like a copy, see below for how to request this.
But for those short of time, here’s a quick look at some of the key factors.
World affairs still dominate
As we leave the summer behind, geopolitical developments remain a major influencer of global energy prices – and this shows no signs of abating as we head into the winter months.
The Russia-Ukraine conflict, trade tariffs and policies, US-China relations, EU sanctions – all continue to have a big impact on energy commodity prices.
All eyes on the forecast
As expected, another major seasonal driver is the weather – and not just in terms of temperature and its impact on demand. Wind levels have become another important factor to monitor, as wind turbines now generate around a third of the UK’s power.
So on dull, flat days, we need to turn to other means of supply, which can push power prices up. And during consistently windy periods, day-ahead prices can dip super low (perhaps even into negative territory!).
In our forthcoming video – Winter energy price watch: Five key drivers to monitor – we’ll share the current long-term winter forecasts.
What’s in reserve?
The supply-demand margin is also significant, as it’s what keeps us out of trouble (and the lights on) if generation does dip for some reason.
And the good news is that the UK’s National Electricity System Operator (NESO) has indicated that we should have a 6.6GW supply cushion this winter – more than any year since 2019.
Dash for gas
Supply and demand for liquified natural gas (LNG) are also important determinants of not only gas prices, but power prices too. Despite the significant increase of renewables in our electricity mix, gas remains an important fuel for generating baseload power.
As ever, competition for this important commodity – even more so now the EU is set to bring forward its ban on Russian liquified natural gas (LNG) imports – drives the price.
So monitoring demand from not just the EU, but Asia too, can provide insight into wholesale price and volatility drivers.
French nuclear output
Supply from our neighbours – and especially our largest source of imported power, France – is crucial to meeting the UK’s power needs.
The operational status of the French nuclear fleet is therefore a key risk factor. Any reduction in availability – due to outages or increases in demand from, for example, a cold snap in France – could limit or increase the cost of imports and place additional pressure on our domestic generation.
That said, current forecasts suggest an extra 6.2GW in capacity from the French nuclear fleet this winter, which should be helpful to us during peak demand periods, or when our own wind output is low.
Five factors to keep in focus this winter
If you’re looking for clues as to where energy commodity prices are going, we'll be releasing our next video in the coming weeks, when I will share the five key drivers to keep an eye on.
And to receive the full 'Winter 25 Outlook' report (if you’re not already an Optimisation Desk customer), contact us here.