There has been a high level of press coverage in recent days on the unprecedented increase in energy prices. These increases are being primarily driven by the gas market, but there have also been pressures on carbon and electricity prices. We at LGE wanted to offer some context on the current situation and what it means for your energy supply contracts.
A number of market factors have influenced gas prices, for example as of 21/09, prices for this winter have increased from 46 pence per therm to 194 pence per therm (equivalent to 1.57p/kWh to 6.62p/kWh for commodity only) and prices are still increasingly volatile. As the UK relies heavily on gas as a means of electricity generation, this has also put pressure on electricity prices, which for this winter have increased from £50/MWh at the beginning of the year to over £200/MWh in the past week. Gas prices rose 70% last month alone, presenting significant challenges for both energy suppliers and businesses.
Gas Price Increases
LGE would like to assure its clients that it is monitoring the situation very closely and is in regular contact with suppliers. At this time, we do not believe there to be any risks to contracts already in place. If this situation were to change, LGE would of course provide further updates and a recommended course of actions to clients. LGE is here to support you.
LGE has operated a prudent hedging strategy for its clients’ winter 21 exposures to the markets, which has enabled us to de-risk these positions against the recent increase in wholesale commodity prices. However, we recognise that a number of clients have yet to make a final decision regarding their next contract.
Given the current state of the markets, we understand that this is not an easy decision to make. Your LGE Account Manager is here to support you through this challenging time and will look to present you with a range of contracting options to help manage your gas and electricity spend over the winter months. In the event of a harsh winter, there is a risk that the high prices we are currently seeing may become our new normal. With this in mind, clients should strongly consider longer term risk management strategies. Unfortunately, clients yet to sign a contract are likely to see a significant increase in their energy costs.
It is important to note that suppliers are currently updating pricing on contract offers much more frequently than usual, which means the timeframe for businesses to accept contract offers is tight. It is important for signatories to be available for acceptance as soon as possible once contracts are received.
If you have any questions about your current energy position or wish to explore the options you have going forward, please contact your LGE Account Manager. LGE is here to support you during these uncertain times.