UK gas generators to profit despite record low power prices

UK energy companies could still see generating profits from gas-fired power rise this winter, despite record lows on both gas and power markets.

The price of gas for delivery this winter fell to lows not seen since market experts at Icis began assessing the contract’s value, it said, and power prices have followed suit because the cost of gas-fired power is the primary market driver.

But the difference between the selling price of power and the cost of gas and carbon emissions has widened in recent months, meaning profits for gas generators could still rise compared with levels seen in the summer.

Icis told Utility Week that at the end of Q2 the profitability measure for gas-fired power (known as a spark spread) stood at £2.50/MWh when taking into account the market price for gas, power and the UK’s carbon tax. But by the end of September the spread stood at £4.30/MWh.

Although power prices have tracked losses in the gas market to an extent, concerns over the UK’s dwindling power capacity have limited losses on the power price to lift potential generating profits.

The overall price of power for this winter is still expected to be lower than in previous seasons, which might also bolster supply profits if supply tariffs hold steady.

Icis notes in a winter outlook report that, even if the UK is faced with a capacity squeeze due to high temperature-led demand or an unexpected outage, price spikes will be limited to near-term trading. Power bought in advance – a significant part of a supplier’s portfolio – will still be at very low levels.

For gas, Icis’ outlook report suggests that only a very long and cold period could deplete Europe’s ample supply to the point that prices might recover.