Moody’s: Wholesale power prices to remain stable

Wholesale power prices are set to remain stable through to 2020, due to declining demand, weaker gas prices and the rollout of offshore wind, said Moody’s today.

However, the rating agency said an accelerated decline in electricity demand could cause prices to fall.

“We believe that widely expected tightness will be short-lived as energy-efficiency gains, the roll-out of offshore wind power and the return of mothballed gas plants will keep prices in check”, said Scott Phillips, Moody’s vice president and senior analyst. “Our view is that power prices will stay around current levels, or GBP48-53/MWh, through the end of the decade.”

Moody’s expects that pressure on the profitability of gas-fired plants will continue, but coal plants should fare better. SSE is in a better position than Centrica given its greater proportion of coal and renewable generation, as well as its regulated operations. Centrica is particularly exposed because of its ownership of gas plants but also its sizeable exploration and production operations, which will be hurt by weak natural gas prices.

Moody’s notes that rising consumer energy bills, a fierce debate about  the increasing cost of living and the fast approaching General Election means that the political and regulatory risk environment for UK utilities remains challenging. Given the conflict between the cost of decarbonisation and affordability, these conditions are set to last.

In a separate report released today, Moody’s said the credit quality of unregulated utilities across Europe was likely to be adversely affected uncertainty and political conflict surrounding the implantation of energy policy in the European Union.