Energy Outlook

April 2024

April 2024

After fairly consistent falls over the last year in all of the major commodities, we are now seeing some gentle upward movement after hitting a low point (for power and gas) towards the end of February. Technical analysis of the charts suggests that the current market is now in recovery, but the fundamental drivers of supply and demand are mixed. Nevertheless, prices are moving up steadily across the board, so now is a good time to take stock and consider how far forward your prices are fixed for, and whether you want to continue to risk having short-term exposure. Whilst big price spikes are not anticipated, the mood on the market has certainly turned 'bullish' for the time being, so increases in the forward prices can be expected in the quarter ahead. This report examines the recent trends and activities affecting the UK energy markets and considers how prices might move in the coming months as we head into summer, taking into account the big geopolitical issues which drive the oil market, as well as local conditions which directly impact UK gas and power.

Energy Price History

The chart below illustrates the history of wholesale oil, gas and power prices in the UK over the last two years. The unprecedented prices of 2022 dominate the picture; however, this doesn't mean that the markets are now quiet. While a return to these extreme highs is very unlikely in the foreseeable future, it remains important to keep a close eye on the market to take advantage of potential opportunities and avoid risks.


Oil prices defied expectations at the back end of last year by falling despite the increased risk of violent escalation in the Middle East and production cuts brought into place by OPEC. Much of this was driven by short-term market speculation, with some large players selling the market short to turn a quick profit. Eventually, fundamental forces will always win out (this is as true when markets fall as when they spike) and this is what we are seeing now, with the balance of production against global consumption now tightening. This shift in direction can be expected to continue as the market rebalances and OPEC members consider further production cuts. However, a steep rise seems unlikely whilst global economic growth remains sluggish and US crude oil inventories stay strong.


Gas prices fell to their lowest for over two years in February, but have since started to recover on suggestions that the market had become 'oversold'. The market is well supplied with LNG and storage levels are high for the time of year, but as with oil, there is a sense that price falls have outrun the true fundamentals. Chinese demand for LNG is up year-on-year and there is some risk of this gathering more momentum, although the market doesn't seem to be overly concerned. In addition, we have an extended outage in the US's largest LNG terminal in Freeport, Texas following a fire last year. If this continues it will start to weigh more heavily on sentiment for winter prices as we move through the year. None of these things are huge risk factors, but certainly warrant keeping a close eye on.


Electricity prices mostly take their lead from gas due to the continued high proportion of gas-fired generation in the UK. Other factors have an influence, though, including carbon prices (which directly affect wholesale power) and the impact of increasing (but variable) renewable generation. Over the past six months, UK carbon prices de-linked and dropped compared to the EU market, despite the announcement of plans to cut allowances to the lowest-ever levels. Since January, this has stabilised and is now trending gently upwards (albeit well below the levels seen a year ago). The carbon market is notoriously volatile, but some limited further increases are expected. On the positive side, the French nuclear fleet has performed well over the winter following several years of serious outages. This is positive for the UK market because it generally supplies any shortfall via the interconnector - the power can now flow back the other way, helping to limit the risk of price spikes.

Non-Commodity Costs

Non-commodity costs (or 'non-energy' costs) are charges added to your bill to cover the costs of the National Grid transmission network, local distribution costs, renewable and environmental surcharges, and taxes to ensure the security of supply by subsidising the availability of capacity. These elements make up over half of a typical bill today. The chart below shows the history and how these are forecast to change for an average customer:

The market has impacted several non-commodity cost elements, the most significant being as follows :

Contracts for Difference (CFDs): Cfd costs for those on passthrough contracts were much lower than anticipated over the last year. This is because the CFD mechanism works by paying generators the difference between the market price and an agreed 'strike price'. When the market is very high, generators have to pay the difference back. As the market drops back, CFD costs will increase again, but should not return to pre-crisis levels.

Distribution (DUoS): Distribution costs are recovered from actual consumption. This was much lower last year than anticipated, there has been a significant under-recovery which distributors are allowed to recoup through next year's bills. Customers should expect a one-off jump in charges for this next year.

System Balancing (BSUoS): Historically, BSUOS charges were minimal and predictable, but with a combination of the growth in intermittent generation and extremely volatile wholesale energy prices, the costs have increased five-fold since 2015. The uncertain nature of the costs means that the potential range of prices in the years ahead is very high, although we are not expecting a reduction!

For more information, please get in touch with your Utility Aid Account Manager or call us on 0808 1788 170

DISCLAIMER – This Outlook Paper is provided for information purposes only and may include opinions expressed by Utility Aid Ltd (“UA”) which are not guaranteed in any way. UA does not represent or warrant that the information provided to you is comprehensive, up to date, complete or verified, and shall have no liability whatsoever for the accuracy of the information or any reliance placed on the information or use made of it by any person or entity for any purpose. Nothing in this Outlook Paper constitutes or shall be deemed to constitute advice or a recommendation to engage in specific activity or enter into any transaction.

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