Market Pulse
29th October 2021
Nord Stream 2 cleared of ‘supply threat’ removing a major hurdle
Two minutes after market close on Tuesday 26th, the German Economy Ministry announced that Nord Stream 2 does not break security of supply regulations, a major step forward for the commissioning of the pipeline. Nord Stream 2 is completely full and they can turn it on at any time. Following this announcement, Putin suggested that large volumes of gas would flow into Europe from next week, which would completely replenish Europe’s low storage levels. Malnow is likely to be injected to the maximum, which is currently operating at 30mcm but has a maximum of 90mcm, so a significant increase. These increased flows are scheduled to begin on 8th November. This is a huge boost for European gas supplies.
As expected, the Nord Stream 2 news has impacted the market, a considerably bearish reaction at that. Front month NBP dropped by 54p/therm, and is sat at 175p/therm at the time of writing.
This has pulled power prices along with it, with front month baseload power dropping by £40/MWh, dropping below £200/MWh sitting at £180/MWh at the time of writing. The UK has also seen the return of three nuclear plants this week, totalling 1.6GW giving the generation stack an even healthier outlook. Along with a prolonged spell of high winds over the last couple of weeks, there has certainly been a slight ease of pressure on the markets.
Is there a re-coupling on the cards
At the start of the year, we saw the two power trading exchanges, EPEX and N2EX, de-couple. This meant that instead of operating together these exchanges separated into two auctions, closing at different times and clearing at different prices – There is set to be a consultation on reversing the decoupling. As discussed in a blog released at the time, this has created inefficiencies and some major price divergences. In September we saw a peak difference of £1,077.81/MWh (£1,422.20/MWh in APX and £2,500.01/MWh in Nordpool), which is the highest divergence since the markets decoupled. After an initial consultation, energy traders have told BEIS that it is necessary to see a single electricity price to trade power efficiently across interconnectors with Europe. Without a single price for the power traders liquidity has been reduced, trading arrangements are undermined, particularly at times of system stress, and the challenges of setting up effective hedging strategies increases. Taking into account the unprecedented volatility we have seen of late, it makes clear sense to simplify the process as much as possible.
Climate Change Committee backs the UK Government’s net zero strategy
Last week, the Government announced new details on how the UK will transition to net zero by 2050. Including:
– £620m in grants for electric vehicles and charging points
– Grants of up to £5,000 for householders to install low-carbon heat pumps
– £120m to develop small nuclear reactors
– Investment into Hydrogen production
– £625m for tree planting and peat restoration
– More money for carbon capture and battery storage hubs
This has been given a big confidence boost by the Climate Change Committee who have given it their seal of approval. In their review they described this strategy as ‘an ambitious and comprehensive strategy that marks a significant step forward for UK climate policy, setting a globally leading benchmark to take to COP26.’